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Getting a Handle on Social Media Assets and Liabilities in M&A Transactions
Practical Law Legal Update 2-589-5050 (Approx. 4 pages)
Getting a Handle on Social Media Assets and Liabilities in M&A Transactions
by Practical Law Intellectual Property & Technology
| Published on 25 Nov 2014 • USA (National/Federal) |
A Legal Update discussing social media issues in connection with a merger or acquisition (an M&A transaction). This Update includes practice and drafting tips for covering social media accounts and associated legal risks in intellectual property (IP) legal due diligence and IP representations and warranties.
Corporate use of social media is increasing across industries and platforms. In 2014:
- Over 80% of Fortune 500 companies had corporate Twitter or Facebook accounts, including companies from all 72 industries represented in the Fortune 500.
- Over half of the Fortune 500 had corporate YouTube or Foursquare accounts.
- 97% of Fortune 500 companies had LinkedIn company pages.
Despite this increasingly widespread use, social media use and associated legal risks are often overlooked in evaluating a target company's intellectual property (IP) and internet assets and liabilities in connection with a merger or acquisition (an M&A transaction). Social media assets and liabilities may not fall squarely within the issues typically covered in IP legal due diligence or by IP representations and warranties, particularly when materiality limitations apply. For example:
- Social media account or user names may not constitute "trademarks," but may be an important part of a company's brand awareness strategy.
- Content posted on or data collected through social media sites may not constitute "material unregistered copyrights," but may provide valuable benefits to the target company's product development, marketing and sales, customer relations or other business functions.
- Social media platform agreements may not constitute "IP licenses" or meet the threshold specified for "material contracts," but lack of compliance with the terms of these agreements could result in infringement or other claims from the platform owners or end users.
- Social media use can create a risk of violation of rights of publicity or defamation for companies in industries where such claims are not typically a concern.
Social Media Due Diligence
A legal due diligence review of a target company's IP assets and liabilities should include an evaluation of:
- The nature and extent of the target's use of social media.
- The target's internal policies and practices relating to social media, including for employee posting of content.
- The target's policies and practices relating to user-generated content and associated infringement risk.
- The target's compliance with the terms of social media platform agreements. For a discussion of the common terms and legal risks associated with these agreements, see Article, Social Media Platform Agreements and Brand Risk.
- Any contractual or technological impediments to transfer of social media accounts and content after closing.
For issues concerning social media to be covered in an IP due diligence review, see IP Due Diligence Issues in M&A Transactions Checklist: Websites and Social Media.
For model due diligence requests concerning social media, see Standard Document, Due Diligence Request List: IP and IT: Websites and Social Media.
Social Media Representations and Warranties
If a buyer's due diligence review reveals that the target company's social media use has resulted in the creation of significant assets or potential liabilities, the buyer should seek to add provisions to the M&A transaction agreement to address these issues. For example:
- The definition of IP should specifically include:
- social media account or user names, for example, Twitter handles, whether or not constituting trademarks; and
- content and data from the target's social media pages, whether or not copyrightable.
- The IP representations and warranties should address the key social media issues identified in due diligence, including:
- compliance with the terms of social media platform agreements; and
- any suits, claims, proceedings, complaints, audits or other notices relating to the target company's use of social media.
For model representations and warranties addressing social media issues, see Standard Clauses, IP Representations: Stock Purchase (Pro-buyer) and IP Representations: Asset Purchase (Pro-buyer).
For a discussion of the legal risks associated with the use of social media, see Practice Note, Social Media Risks and Rewards.