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Social Media and Copyright Law In Conflict

When it comes to disruption, the advent of social media communications is decidedly in the front row. But along with revolutionizing personal (and political) relationships, the sharing of content on social media sites like Facebook, Twitter, Tumblr and Instagram — now a Facebook property — is steadily increasing pressures on a quite different regime, namely copyright law. The passage and forthcoming implementation in the UK of what has become known colloquially as The Instagram Act, boringly titled the Enterprise and Regulatory Reform Act, promises only to accelerate the conflict between new social media services and legacy copyright rules worldwide.

This author has written, and ranted, about ownership of user-generated content (UGC) for several years. The gist of the problem is not that social media providers want to claim ownership of UGC. None do, despite occasional outcries to the contrary, although they also insist rather unremarkably via terms of service (TOS) on a license to display UGC posts to those a user authorizes. Instead, the problem arises when third parties want to incorporate user-created content into their own sites or publications. After all, if CNN or Fox News broadcast tweets, status updates and Flickr photos as part of their news stories, wouldn’t these and other organizations be violating the inherent copyright users hold in their own content? Put another way, if posting users have legal rights to their UGC, doesn’t it follow that even “retweeting” constitutes unlawful copyright infringement?

In most of the world today, ownership of one’s creation is automatic, and considered to be an individual’s legally protected intellectual property. That’s enshrined in the Berne Convention and other international treaties, which abolished registration as a formal predicate for copyright interests (although not for judicial enforcement). What this means in practice is that one can go after somebody who exploits a creative work without the owner’s permission — even if pursuing them is cumbersome and expensive — once the work is registered with the appropriate governmental copyright authority.

Social media sharing throws all these regimes into chaos. Take first the issue addressed by The Instagram Act and, in a slightly different context, U.S. litigation over the Google Library service: “orphaned” works. The new UK law theoretically aims to make it easier for companies to publish orphan works, which are images and other content whose author or copyright holder can’t be identified. But whereas in the past, orphan works were often out-of-print books and historical unattributed photos, today millions of images are quickly orphaned online, as they move from Instagram to Twitter to Facebook to Tumblr without attribution along the way. The British response was to adjust copyright law so that an orphaned work can be republished without liability if a third party makes a “reasonably diligent” search to identify and locate the original owner.

Continue reading Social Media and Copyright Law In Conflict

Schizophrenia On SocMedia

No, the title is not meant to imply a post about the privacy implications of mobile medical apps for psychotherapy. Instead, we’re taking a look at how the government acts at cross-purposes to itself when it comes to the oh-so-slow development of rules for new technologies and markets. The last few weeks have seen a couple of remarkable announcements, one from the FTC about digital advertising disclaimers and one from the SEC about corporate financial disclosures. Both were presented by the agencies as ways to enable use of social media by corporations — but instead just make things much harder, if not totally impracticable.

Two weeks ago, the Federal Trade Commission basically said “to heck” with form factor and responsive Web design by concluding that disclaimers, caveats and related mandatory advertising disclosures cannot be put into a popup window and must be in the same “conspicuous” format — font size and all — regardless of the device or medium. FTC .Com DisclosuresThe FDA had already cracked down on trailblazing pharma firms that tried Facebook advertisements on the same grounds. Both enforcement decisions demonstrate a complete lack of familiarity with new media and an inability to flexibly apply the principles of regulatory schemes to changing circumstances.

Even if, unlike advertiser contentions, potential “Do Not Track” mandates for Web browsing would not kill the Internet content industry, the FTC has signaled it is prepared unilaterally to dictate the size of social media ads in the guise of consumer protection. The old guidance allowed for “proximity” of disclosures — that is, disclosures that were “near, and when possible, on the same screen.” The new guidance places heightened emphasis on disclosures being clear and conspicuous to consumers across all platforms. The newly announced principle is that disclosures should be “as close as possible,” with short form disclosures such as hyperlinks or hashtags permitted only when their meaning is understood by consumers.

Check out this remarkable assertion, for instance:

If a disclosure is necessary to prevent an advertisement from being deceptive, unfair or otherwise violative of a Commission rule, and if it is not possible to make the disclosure clear and conspicuous, then either the claim should be modified so the disclosure is not necessary or the ad should not be disseminated. Moreover, if a particular platform does not provide an opportunity to make clear and conspicuous disclosures, it should not be used to disseminate advertisements that require such disclosures.

A second and related announcement came on Tuesday from the Securities & Exchange Commission. The SEC is the federal agency which pioneered use of Facebook and other social media services in the corporate realm by providing 2008 guidance that release of corporate earnings and other “material” financial information can permissibly utilize social media. Yet now the same agency — after a fruitless investigation of Netflix CEO Reed Hastings for an innocuous Facebook post — says that companies may treat social media as legitimate outlets for communication, much like corporate Web sites or the agency’s own public filing system called Edgar, but first have to make clear which Twitter feeds or Facebook pages will serve as potential outlets for announcements.

It is difficult to reconcile these new regulatory positions with the objectives the agencies articulate. The SEC says it believes that “company disclosures should be more readily available to investors in a variety of locations and formats to facilitate investor access to that information,” but its actions only serve to make the choice of location and format more rigid, and with fines a potential consequence for those pursuing flexibility.  Almost any lawyer counseling public company clients today will advise that financial information that in the future could be considered material by the SEC must be constrained to an official, designated Web page. So much for tweets, Facebook and other real-time forums, they’re just too risky — even though Hastings survived unscathed. The correct approach for the vast majority of the 13,000+ public companies in the U.S. is to steer clear of social media, at least for now, because the downside is simply too great.

Coming from a government that professes to want to encourage broader use of these new media, that’s classic bi-polarism, obviously not in a happy phase.

Note: Originally written for and reposted with permission of my law firm’s Information Intersection blog.


When World Views Collide: Social Media And the SEC

Yesterday the U.S. Securities & Exchange Commission did something routine. It issued a so-called “Wells-notice” against a company, charging the firm preliminarily with releasing confidential financial information to a select portion of the market, instead of publicly to all investors as required by Reg FD (“fair disclosure”). What is remarkable, and potentially troubling, is that the basis for the charge was a short social media message by Netflix CEO Reed Hastings, reposted on the company’s public Facebook page.

As Law360 explained:

Netflix Inc. and its CEO Reed Hastings could face action by the SEC over Hastings’ July post revealing that Netflix members had watched more than one billion hours that month, the online video service said in a regulatory filing Thursday. Netflix and Hastings received a Wells notice on Wednesday that said the company could face either a cease-and-desist or civil injunctive suit for fair-disclosure violations allegedly prompted by the posting on the social networking site, according to an SEC filing by Netflix.

The juxaposition of a good-intentioned securities regulation and the disruptive impact of new technology could not be clearer. In his post, Hastings congratulated the Netflix team for a job well done in early July, noting the one billion hours of video delivered to subscribers the previous month. The message was just 43 words. In the usual social media fashion, the post was forwarded by his followers. Bloggers picked up on it. Media reports cited it.

So what’s the deal? Technically, Netflix had not filed an “8K” update with that data at the SEC nor issued a traditional press release. But the company had revealed the 1B streaming hours in its public blog well before the CEO’s Facebook post. And in 2008, the SEC became the first federal agency to recognize the growing communications functions of blogs by issuing landmark guidance saying that corporate use of blogs for release of material financial information would satisfy Reg FD.

Reed Hastings Facebook page

In this context, the action against Hastings seems to make little sense. Even if the prior blog post had not disclosed the 1B figure adequately, Hastings’ post was open to more than 200,000 followers of his Facebook page, could be “subscribed” by anyone (“friends” or not) and was widely and immediately disseminated, both in social and traditional media. Had Hastings done this via a Twitter DM (direct message) or a private Facebook message to one or more individual friends, that would be completely different. But his post was public and thoroughly publicized.

That’s the precise purpose of Reg FD. But the SEC’s Wells notice illustrates that even government agencies that “get it” technically are often trapped in outmoded world views. It’s one thing for a public company CEO to post messages about financial performance on financial chat rooms and lists, under a pseudonym, to pump up trading volume artificially. It’s quite another for bureaucrats to decide that unless one uses the obsolescent technology of the past, public disclosures are inadequate. Would the SEC also suggest that a webinar, rather than telephonic conference call, is insufficient under Reg FD when announcing earnings guidance because not all investors have broadband Web access? That is hardly a sensible result.

We’ve written a lot in this blog about social media policies and how to reduce enterprise legal exposure. The irony of the Netflix case is that a company and executive who seem to have had a valid policy and followed the government’s own guidelines for use of social media has been targeted in a possible enforcement action nonetheless. That raises the spectre, which numerous commentators noted in connection with more a recent SEC alert on social media usage by investment advisors, that vague agency guidelines may lead to policy making by criminal complaint, rather than rules of general applicability. If that is the case with regard to blogs and Facebook as mechanisms for Reg FD compliant disclosures, there’s an equally great risk that these new modes of communication and interaction will be rendered impotent for corporate purposes due to the unknown scope of potential SEC exposure. That’s a bad result which everyone should hope we do not reach.

 Originally written for and reposted with permission of my law firm’s Information Intersection blog.


Twitter Digest For Week of 07-02-2012



Twitter And the FTC: Myopia One Year Later

Disco Project

One year ago, the Wall Street Journal and other business publications reported that the Federal Trade Commission (FTC) had launched an investigation into “Twitter and the way it deals with the companies building applications and services for its platform.” The gist of the apparent competitive concern was that Twitter — which has grown from nothing to a significant new medium of social communications in just five years — had decided to limit access to its application programming interfaces (APIs) for third-parties, such as HootSuite, Echofon and the like, selling Twitter “client” software.

There’s no doubt Twitter is a disruptive technology. Of course, in 2000 the FTC was so convinced that an AOL-Time Warner combination would monopolize Internet content that it saddled the then-biggest merger with an onerous consent decree that evaporated, as did AOL itself, in the relative blink of an eye. Now it appears the agency is making the same mistake again. Assuming that a new and evolving technology represents a stand-alone market for antitrust purpose is dangerous where disruptive entrants are concerned, because as AOL illustrates, despite a first-mover advantage, even in network effects markets that may “tip” to a single firm competitive reality changes more quickly and in ways even the brightest pundits and government policy makers could never predict.

Twitter logoGiven that Twitter is in competition with Facebook, LinkedIn, Tumblr, Pinterest, Instgram and many other social networking and messaging services, including the near-moribund Google+, you’ve got to wonder why the FTC could even plausibly hypothesize that Twitter has anything approaching monopoly power. One can perhaps understand policy neophytes like Mike Arrington naively saying that Twitter has a “microblogging monopoly,” but not seasoned antitrusters.

Twitter management explained at the time that “Twitter is a network, and its network effects are driven by users seeing and contributing to the network’s conversations. We need to ensure users can interact with Twitter the same way everywhere.” That’s a quintessential business judgment by corporate managers who presumably know their users (tweeters) and customers (advertisers) best. The company’s motivation is also clear and perfectly valid: it doesn’t want third parties making money — namely, coming into direct rivalry by selling ads — off its service, and thus depriving Twitter of potential revenue. It is incontestable that Twitter could vertically integrate into the client software business itself (a first step in which it did by acquiring TweetDeck), without any possible antitrust constraints. In this light, what could conceivably be wrong with Twitter setting ground rules that require third-party providers to utilize a common user interface (UI) scheme?

As Adam Thierer of the Technology Liberation front observed in 2011:

This episode again reflects the short-term, static snapshot thinking we all too often see at work in debates over media and technology policy. That is, many cyber-worrywarts are prone to taking snapshots of market activity and suggesting that temporary patterns are permanent disasters requiring immediate correction. Of course, a more dynamic view of progress and competition holds that “market failures” and “code failures” are ultimately better addressed by voluntary, spontaneous, bottom-up responses than by coercive, top-down approaches

Ironically, the Twitter decision to control API usage and effectively boot off some third-party software had only one economic effect. It cannibalized Twitter’s own developer and partner ecosystem, on which the company had relied heavily through its first years of extraordinarily rapid growth, in favor of an internal solution. That decision alienated some Twitter users and almost certainly reduced the absolute number of tweets sent and received — and thus the page views on which Twitter’s advertising rates are necessarily based. It also risked alienating the venture capitalists who have invested an estimated $475  million over just one-half of a year in companies working to develop Twitter-compatible apps and utilities. So the only firm Twitter is really hurting by this practice is Twitter itself. Eating your own ecosystem is hardly the stuff of monopolization.

Sacrificing independent distribution in favor of vertical integration is also a business model companies adopt and reject like roller coasters. In the oil industry, for instance, the most famous government antitrust case of them all is 1911’s Standard Oil, which broke up the vertically integrated petroleum monopoly assembled by John D. Rockefeller. Today, Standard’s offspring are rapidly disintegrating, divesting both wholesale distribution of refined oil products and retail gasoline dealerships. Sometimes conventional business wisdom extols vertical integration, other times it emphasizes an Adam Smith-type comparative advantage. But isn’t that the essence of marketplace competition? And in turn isn’t that something our nation’s competition policy should leave in the hands of market participants rather than government agencies?

The answer from Forbes is a simple yes:

If the FTC is indeed investigating Twitter, they are likely to find this case pretty boring. In acquiring the third party apps widely adopted by its users, Twitter is simply making a gradual, not to mention inevitable, move closer to its customer base. The startup is often slammed for its struggle to adopt a serious business model. Now that Twitter has finally figured out it is awfully difficult to build a business as a plumbing conduit, suddenly it’s lambasted as the next Microsoft.

In fact, the issue here is far more significant for technologies down the road that no one has as yet even conceived. Twitter seems sufficiently well-established that it will likely survive an FTC investigation, at least in the short run, and however misguided the government’s underlying assumptions may be. But start-ups which have not yet escaped from private betas and coders’ college dorm rooms will give pause, as they grow, before deciding to sever relations with partners Federal Trade Commissionthat helped them “get big fast.” The fear is that cutting off downstream firms, even if taken for objectively valid business reasons, will catalyze an FTC or European Union antitrust investigation of whether the firm has “abused” its “market dominance.”

A threat of government action can be just as debilitating to innovation as premature enforcement intervention into the marketplace. Let’s hope the FTC’s 2011 Twitter investigation is mothballed in 2012, and that in the future investigations of segment-leaders in nascent technology spaces are opened only where — unlike the case of Twitter — there’s clearly an economically valid market and practices involved which are unambiguously anticompetitive. The FTC has said nothing about the Twitter issue for a year, while the San Francisco Examiner revealingly comments that “[i]n the space of [that] year, the FTC has racked up more legal action involving the high tech world than the FCC and both houses of Congress combined.” Note to Chairman Leibowitz: it’s time to let this one go, now. If your agency wants to do that quietly in order to save face, no one in Silicon Valley will mind at all. We won’t tell.

Note:  Originally prepared for and reposted with permission of the Disruptive Competition Project.



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