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May 20, 2009

Twitter - New Opportunities and Headaches for Companies

Arnold & Porter Advisory

First came blogs. Then Facebook. And now Twitter. Although these communication and networking tools were once used mainly by individuals for personal purposes, they are increasingly used by companies. For instance, Dell and Chevron sponsor public blogs. Law firms have joined the fray, with many sponsoring blogs and creating Facebook pages. More recently, companies like e-Bay, McDonald's and Google have created corporate Twitter accounts. These tools appeal to companies because they allow them to communicate with their employees, customers and other constituencies in a direct, informal and participatory way. At the same time, corporate sponsored blogs, Facebook pages and Twitter accounts pose significant legal risks. Companies that anticipate these issues and plan accordingly can reap the benefits of these new forms of communication while reducing the risk of litigation. Among the legal issues raised by blogs, Facebook and Twitter are:

  • Defamation and Privacy Torts and Intellectual Property Infringement. Companies may face liability if their employees post content to the corporate blog, Facebook page or Twitter account that defames or invades the privacy of third parties. Posts that include a third party's intellectual property, such as copyrighted material or trademarks, may expose the company to liability for infringement. A recently filed case, Anthony La Russa v. Twitter, Inc., et al. (Superior Court of San Francisco, filed May 7, 2009), illustrates the potential exposure in these areas. LaRussa, the manager of the Saint Louis Cardinals, alleged that the twitter.com/TonyLaRussa site contains unauthorized photographs of him and written statements impliedly made by LaRussa when in fact they were not. Based on this, LaRussa contends, Twitter is liable for trademark infringement, false designation of origin, trademark dilution, cybersquatting, misappropriation of name, misappropriation of likeness, invasion of privacy, and intentional misrepresentation.

  • Trade Libel. False or misleading statements made through a company's blog, Facebook page or Twitter account about the goods or services of a competitor that cause or are likely to cause the competitor harm may be grounds for a trade libel action.

  • Trade Secrets. Inadvertent disclosure through a company's blog, Facebook page or Twitter account of company trade secrets can destroy the "secret" status of such information, rendering it ineligible for trade secret protection, and disclosure of a third party's trade secrets could expose the company to liability for trade secret misappropriation.

  • Securities Fraud. Material misstatements made through a company-sponsored blog, Facebook page or Twitter account could expose a publicly traded company to liability for securities fraud under various antifraud statutes. The SEC provided helpful guidance last summer in its Release No. 34-58288 (Aug. 1, 2008) with respect to potential liabilities resulting from interactive communications forums. That release made clear that a company employee "speaking" in a company-sponsored interactive forum may never be deemed to be acting in an individual capacity. Accordingly, the company likely will be liable for all employee statements made in that context. Even the company's historical information that is no longer accurate or links to third-party websites or information without appropriate disclaimers and legends could expose the company to similar liability. 

  • Selective Disclosure. Disclosure of material nonpublic information through a publicly traded company's blog, Facebook page or Twitter account could be deemed a prohibited selective disclosure under federal securities laws. While last summer's SEC guidance in the above-mentioned Release was very helpful with respect to whether a posting on a company's website could constitute "public" disclosure for the purposes of compliance with Regulation FD, there is no bright line test and each situation must be analyzed on a case-by-case basis.

  • Gun-Jumping. If a company is involved in a registration process with the SEC, statements made through the company-sponsored blog, Facebook page, or Twitter account "hyping" the company could be deemed a prohibited offer of the company's securities, in violation of federal securities laws.

  • Forward-Looking Statements. Failure to include appropriate cautionary language accompanying a forward-looking statement on a public company's blog, Facebook page or Twitter account could cause the statement to fall outside the statutory safe harbor for such statements.

  • Employment Issues. Companies may take appropriate action in connection with employees who spend excessive work time on personal blogs, Facebook or Twitter, or who engage in conduct that is harassing, discriminatory or potentially violent on those sites. On the other hand, companies must be very careful about disciplining employees who post content to blogs, Facebook pages or Twitter accounts, whether they are personal or corporate sponsored. An employer who disciplines an employee  for the contents on these sites might face claims based on the employee's right to organize, her right to free speech, or her right to engage in political activities. Moreover, an employee may have the right to discuss some of the terms and conditions of employment on these sites.  

  • User Privacy. Companies that collect personal information from individuals who visit or post comments to company's site may be required to comply with state, federal and foreign privacy regulations. 

  • Discovery. Companies can be sanctioned in the course of discovery for failure to produce archived content.

PRACTICAL GUIDANCE

To minimize the risks, companies should carefully consider their strategy with respect to these novel forms of communication and take proactive steps to minimize potential exposure. Such steps may include:

  • Creating a written policy for employees that sets out clear guidelines for using communication and networking tools to raise awareness about possible pitfalls. Companies may wish to have separate guidelines for employees' discussion of the company in their personal blogs, Facebook pages and Twitter accounts.

  • Establishing terms of use and posting appropriate disclaimers that limit the company's liability for third-party statements and other claims. 

  • Regularly monitoring the communications for content that violates terms of use, employee policies or applicable laws. 

  • Taking the steps required to qualify for the safe harbors available under the Digital Millennium Copyright Act.

  • Ensuring that any personal information gathered from users via the corporate blog, Facebook page or Twitter account is handled in compliance with applicable privacy laws and the applicable privacy policy.

  • Archiving communications content in a well-organized and readily available form. 

If you have questions about any of the issues raised in this article, contact Dipanwita D. Amar at 415.677 6322 or Julia Vax at 415.399.3174 or your usual Howard Rice attorney.

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