Social media sites are transforming not only the daily lives of consumers, but also how companies interact with consumers. Here at Morrison Foerster, across all of our practice groups, we are seeing complex, cutting-edge legal issues arising out of social media. As with the Internet boom during the mid-to-late 1990s, social media is generating new legal questions at a far faster pace than the law’s ability to provide answers to such questions. In an effort to stay on top of these emerging issues, and to keep our clients and friends informed of new developments, Morrison Foerster publishes this blog devoted to the law and business of social media.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

Social

Search

sociallyaware-abajournalweb100-1

Aaron is the chair of the firm’s Technology Transactions Group and co-chair of the Interactive + Digital Media Group. He advises clients on a wide range of complex transactions involving intellectual property and technology, including structuring and negotiating strategic licensing, development, collaboration, procurement, and distribution deals.Aaron’s practice focuses on advising both established and emerging companies in a variety of data- and technology-intensive sectors, including software, SaaS, cloud-based technology, digital media (social media, AR/VR, gaming, streaming media, AdTech), AI, healthcare, consumer electronics, e-commerce, other online business models, and mobile applications. He also maintains an active practice counseling companies on branding and marketing, trademark licensing, and content-related transactions, as well as the intellectual property aspects of mergers, acquisitions, asset spin-offs, and private equity investments.He has represented clients such as Autodesk, Meta, OpenAI, Splunk, Konami, Kaiser Permanente, SoftBank, Visa, and Yahoo, among others.Aaron has been recognized by numerous publications for his work on market-defining technology transactions. He is currently ranked by Chambers USA for “Technology Transactions.”Aaron also serves as co-editor of Socially Aware, the firm’s award-winning newsletter and blog devoted to the law and business of social media, and regularly publishes on various IP and technology-related topics. Aaron is also a sought-after speaker on new and emerging areas of law, and is a frequent presenter and panelist at conferences and legal services programs. In addition to his active practice, Aaron regularly provides pro bono assistance to various nonprofit and charitable organizations such as Common Sense Media and the Starlight Children’s Foundation. He is a member of the board of directors of California Lawyers for the Arts.While in law school at the University of California, Berkeley, Boalt Hall School of Law, Aaron served as executive editor of the California Law Review and was elected to the Order of the Coif. Following law school, Aaron served as law clerk to the Honorable William H. Orrick and the Honorable Martin J. Jenkins, both United States District Judges for the Northern District of California.

rubin_aaron_blog_150x150.png

rubin_aaron_common_640x280.jpg

rubin_aaron_heroretina_2700x1160.jpg

rubin_aaron_mobileretina_750x1040.jpg

rubin_aaron_social_600x600.jpg

Partner

Aaron is the chair of our Technology Transactions Group. He advises clients on a wide range of complex transactions involving intellectual property and technology, including structuring and negotiating strategic licensing, development, collaboration, procurement, and distribution deals. Aaron’s practice focuses on advising both established and emerging companies in a variety of data– and technology–intensive sectors, including software, SaaS, cloud computing, AR/VR, AI, gaming, healthcare, consumer electronics, social media, e–commerce, other online business models, and mobile applications. He also maintains an active practice counseling companies on the intellectual property aspects of mergers, acquisitions, asset spin–offs, and private equity investments.

Aaron P. Rubin

Lawrence Gallick is of counsel in the firm’s Austin office and a member of the Technology Transactions Group.Lawrence focuses his practice on technology transactions and licensing matters. His diverse experience includes advising on SaaS agreements, cross-licensing agreements, research and collaboration agreements, development agreements, and distribution agreements. He counsels a broad range of companies across the software, hardware, life sciences, biotech and FinTech spaces, as well as other entities including universities.He advises clients in connection with general corporate matters including contract negotiations, and leasing and technology placement agreements.Lawrence also serves as co-editor of <a href="https://www.sociallyawareblog.com/" target="_blank">Socially Aware</a>, the firm’s award-winning newsletter and blog devoted to the law and business of social media, and regularly publishes on various IP and technology-related topics.Prior to joining the firm, Lawrence was counsel at another major law firm. Before earning his law degree, Lawrence was a web consultant, project manager, and web developer in Portland, Oregon, where he managed and consulted on projects using industry methodologies and performed custom development and integration of content management systems.Lawrence was named a Super Lawyers “Rising Star” in 2015 and 2018–2022, and is licensed in both California and New York. Lawrence earned his J.D. from the University at Buffalo School of Law, where he was the electronic systems editor for the Buffalo Law Review and awarded the ABA-BNA Award for Excellence in the Study of Intellectual Property Law.

gallick_lawrence_blog_150x150.png

gallick_lawrence_common_640x280.jpg

gallick_lawrence_heroretina_2700x1160.jpg

gallick_lawrence_mobileretina_750x1040.jpg

gallick_lawrence_social_600x600.jpg

Of Counsel

Lawrence Gallick

Anthony Ramirez is a partner in the Technology Transactions Group in the New York office of Morrison Foerster.Anthony advises clients on general commercial and transactional matters. He regularly advises companies on the IP aspects of their M&A transactions. His clients include technology, digital media and content for television and music, financial services, and communications companies with diverse intellectual property assets and issues.His practice focuses on the legal aspects of developing, licensing, and commercializing technology and intellectual property, as well as negotiating general commercial contracts, including outsourcing transactions, as well as content and data licenses. He regularly assists clients with legal issues relating to licensing and commercialization of digital media and content, digital content that is distributed over the Internet or streamed, mobile applications and social media, as well as the licensing of recorded music for distribution via digital platforms. Anthony is also experienced with issues relating to open-source software, software development, artificial intelligence and machine learning, cloud-based technology, and protection of proprietary information.Anthony has extensive experience working on matters involving disruptive technologies, such as blockchain. He has helped fintech clients with general intellectual property issues in connection with terms of service for online financial products and services.Anthony is an integral part of the outside pro bono legal team for nonprofit organizations based in New York, including advising clients on legal issues regarding entertainment, social media, privacy rights, and the negotiation of outsourcing and service agreements. Anthony received his J.D. from the University of Michigan Law School in 2009. He received his B.S. from Cornell University in 2004.

ramirez_anthony_blog_150x150.png

ramirez_anthony_common_640x280.jpg

ramirez_anthony_heroretina_2700x1160.jpg

ramirez_anthony_mobileretina_750x1040.jpg

ramirez_anthony_social_600x600.jpg

Anthony Ramirez is a partner in the Technology Transactions Group in the New York office of Morrison Foerster. He advises clients on general commercial and transactional matters. His clients include technology, media, and communications companies with considerable intellectual property assets. His practice focuses on the legal aspects of licensing and commercializing technology and intellectual property, as well as negotiating general commercial contracts. He also regularly assists clients with legal issues relating to mobile applications and social media.

Anthony M. Ramirez

favicon.ico

favicon-16x16.png

favicon-32x32.png

apple-touch-icon.png

MoFo Favicons

Socially Aware is devoted to the law and business of social media, proactively addressing emerging issues and keeping our clients informed of new developments. We cover fields such as artificial intelligence, privacy and data security, Section 230, intellectual property, and much more.

Welcome to Socially Aware

240920-socially-aware-header.jpg

Welcome to Socially Aware

240920-socially-aware-header

Socially Aware is devoted to the law and business of social media, proactively addressing emerging issues and keeping our clients informed of new developments. We cover fields such as artificial intelligence, privacy and data security, Section 230, intellectual property, and much more.

News and Announcements

Blog - Terms of Use

Blog - Privacy Policy

Blog - Blog Disclaimer

Blog - Attorney Advertising

morrison-foerster-blog-logo.png

Provides a data-driven look at the Federal Circuit.

Federal Circuitry

Brings together legal insights and in-depth analyses on trends and complex issues shaping the global technology industry.

MoFo Tech

Mofo Tech

Equips our clients with the most up-to-date and relevant information on employment and labor law issues.

Employment Law Commentary

In-depth analysis of developments and trends impacting government contracting.

Government Contracts Insight

Government Contracts Insights

Provides insights and reports on the most current class actions lawsuits and product liability issues that affect consumer-facing companies.

Class Dismissed Blog

Class Dismissed

MoFo’s Socially Aware blog provides timely updates and analysis of the many complex and cutting-edge legal and business issues arising out of social media.

Socially Aware

  Linkedin

MoFo LinkedIN

Socially Aware Blog - RSS

Stay Connected

Never miss a post from Socially Aware. Enter your email below to stay up-to-date.

Subscribe

The Law and Business of Social Media

Morrison Foerster - Footer

Blogs -  Home Button

Home

Blog - Topics

Web Scraping

Advertising

Antitrust

Arbitration

Artificial Intelligence

Asia

Autonomous Vehicles

Bankruptcy

Big Data

Blockchain

Class Actions

Cloud Computing

Compliance

Contracts

COPPA

Copyright

Crowdsourcing

Cyberbullying

Cybersecurity

Data Security

Defamation

Digital Content

Disappearing Content

Discovery

DMCA

E-Commerce

E-Discovery

E-Personation

Electronic Contracts

Employment Law

Endorsement Guides

Ephemeral Messaging

Ethics

European Union

Event

Fair Use

FDA Regulations

Financial Institutions

First Amendment

Fraud

Free Speech

GDPR

Hacking

Influencer Marketing

Infographic

Internet of Things

Investment Management Law

JOBS Act

Labor Law

Litigation

Live streaming

Marketing

Mobile

Online Contracts

Online Endorsements

Online Promotions

Online Reviews

Patent

Privacy

Product Liability

Protected Speech

Right of Publicity

Right To Be Forgotten

Section 230 Safe Harbor

Securities Law

Social Media Policy

Statistics

Status Updates

Stored Communications Act

Supreme Court

Terms of Use

Trademark

UK High Court

User-Generated Content

Wearable Computers

Topics

Blog - Editors

Editors

Blog - About

About

Blog - Subscribe

More

Lawrence W. Gallick

Social Links: If the Suit Fits

Social Links: Age Verification, X Appeal, and the Great White North

Social Links: Fake Reviews, Real Rulings, and an Epic Fail

Lawrence W. Gallick on Toth v. Everly Well, Inc.

Social Links: Going Back to Cali

LinkedIN

CHARACTER.AI SUED IN TWO STATESCharacter Technologies has been hit with two lawsuits, including a wrongful death suit (among other claims), in less than two months over its popular Character.ai chatbot. The first was filed in the U.S. District Court for the Middle District of Florida (<a href="https://d34mgxl0pedajf.cloudfront.net/wp-content/uploads/2024/10/FILED-COMPLAINT_Garcia-v-Character-Technologies-Inc-1.pdf" target="_blank">Garcia v. Character Technologies Inc.</a>) by the mother of a Florida teenager who <a href="https://www.fastcompany.com/91215310/character-ai-app-lawsuit-legal-complaint-teen-suicide-chatbot-google" target="_blank">tragically committed suicide</a> after the chatbot allegedly encouraged the child to do so. The Plaintiff claims her son became instantly addicted to Character.ai and “fell in love” with the bot, leading to drastic behavioral changes such as sleep deprivation, school-related issues, and low self-esteem, which culminated in the child’s death. Just a few weeks later, two plaintiffs in Texas <a href="https://www.documentcloud.org/documents/25450619-filed-complaint/" target="_blank">filed suit</a> alleging that Character.ai <a href="https://www.npr.org/2024/12/10/nx-s1-5222574/kids-character-ai-lawsuit" target="_blank">abused the plaintiffs’ children</a> by exposing them to hypersexualized content, encouraging self-harm, and suggesting they should kill their parents. Both suits allege that the Character.ai chatbot is intentionally designed in a way that exploits minors by simulating human interaction, creating emotional dependence, and failing to implement safeguards against misuse. Given that these are the first major cases to seek damages related to anthropomorphized AI tech, it will be interesting to see whether juries find Character.ai liable, as this could spawn waves of similar lawsuits.MAJOR RECORD LABELS PETITION SUPREME COURT OVER VERDICT REVERSALThree of the world’s largest entertainment companies—Sony Music, Warner Music, and Universal Music—have <a href="https://tmsnrt.rs/3SX6Do2" target="_blank">petitioned the U.S. Supreme Court</a> to reconsider an appellate ruling that wiped out a $1 billion jury verdict in their suit against internet service provider Cox Communications. In 2019, a <a href="https://www.reuters.com/article/lifestyle/cox-to-pay-1-billion-to-music-labels-publishers-over-piracy-infringement-idUSKBN1YO0DE/" target="_blank">Virginia jury</a> found Cox liable for rampant music piracy by the company’s customers and failure to act despite receiving thousands of infringement notices. The verdict was <a href="https://business.cch.com/ipld/SonyMusicEntmtCoxComms4C20240220.pdf" target="_blank">overturned</a> earlier this year by the U.S. Court of Appeals for the 4th Circuit, which confirmed the jury’s finding of willful contributory infringement, but called for a new trial on damages because Cox did not directly profit from the piracy. Unsurprisingly, the plaintiffs appealed, and it appears the Supreme Court is poised to take the case. In a <a href="https://www.supremecourt.gov/search.aspx?filename=/docket/docketfiles/html/public/24-181.html" target="_blank">one-sentence order</a>, the High Court has invited the solicitor general to file a brief expressing the views of the United States. This is a strong indication that the Court is interested in hearing the case. With a new administration set to take the reins in Washington next month, it seems likely that appellate attorney <a href="https://www.scotusblog.com/2024/11/trump-taps-lawyer-who-argued-his-immunity-case-for-solicitor-general/" target="_blank">D. John Sauer</a> will be solicitor general. Sauer’s disposition toward IP cases is tough to predict, as his work has largely focused on hot-button social issues. A brief in the case may give insight into Sauer’s positions on copyright law and corporate liability.X CLAIMS OWNERSHIP OF ALEX JONES ACCOUNTThe asset liquidation of Alex Jones’s <a href="https://storage.courtlistener.com/recap/gov.uscourts.txsb.459750/gov.uscourts.txsb.459750.882.0_1.pdf" target="_blank">intellectual</a> and tangible property in the bankruptcy proceeding following the $1.5 billion <a href="https://www.statesman.com/story/news/politics/state/2024/06/06/timeline-lawsuits-alex-jones-sandy-hook-shooting-infowars-false-claims/73985486007/" target="_blank">defamation judgment</a> against him has hit an unusual speedbump. At issue is Jones’s X account. With its 3.4 million followers, the account is among the highest-profile IP assets on the auction block. But here’s the thing: X has <a href="https://storage.courtlistener.com/recap/gov.uscourts.txsb.459750/gov.uscourts.txsb.459750.937.0.pdf?ref=404media.co" target="_blank">filed an objection</a> claiming that the account belongs to it, not Jones, and is therefore exempt from an asset sale. This raises several interesting questions and a judgment either way could have wide-ranging implications for all social media platforms. Though X’s <a href="https://x.com/en/tos" target="_blank">Terms of Service</a> state that users maintain ownership of “any Content you submit, post or display on or through the Services,” the terms do not explicitly define who actually owns the account. An ownership argument in this context is unusual. We’ve been <a href="/topics/owned-second-circuit-holds-that-traditional-principles-of-property-law-apply-to-social-media-accounts" target="_blank">covering</a> social media account ownership issues <a href="/topics/social-links-social-media-account-ownership-once-again-in-the-spotlight" target="_self">for years</a> and in the majority of cases the conflict is between employee/employer or company/consultant. X may very well prevail in this action. Users own their content, but the account itself will likely be seen as an extension of a user’s license to access and use the platform’s services. We’ll be following this one very closely.X LAWSUIT AGAINST ISRAELI DATA SCRAPING FIRM REVIVEDIt appears that Israeli firm Bright Data will be back in court facing an amended version of a complaint from X that was <a href="https://casetext.com/case/x-corp-v-bright-data-ltd-1" target="_blank">dismissed last May</a>. As we <a href="/topics/california-federal-court-holds-x-s-claims-against-scraper-preempted-by-federal-law" target="_self">reported in June</a>, X alleged that Bright Data’s scraping and selling of data from X violated the social media giant’s Terms of Service and the U.S. District Court for the Northern District of California held that X’s claims were preempted by federal copyright law. Though the court declined to allow amendments related specifically to Bright Data’s scraping operations, it granted X’s motion for leave to amend the company’s trespass to chattels claims and fraudulent business acts allegations. Judge William H. Alsup ruled that X’s updated complaint sufficiently alleges that Bright Data improperly accessed X’s servers, writing: “X Corp. newly alleges that scrapers traverse the X service in patterns markedly different from humans or authorized machines, that scrapers thus use underlying server capacity in abnormal proportions, and that this results in intermittent, isolated server failures and a ‘glitchy, lagged user experience’ for X’s human users.” Judge Alsup added that X also properly alleged that if it hadn’t purchased “millions of dollars of server capacity,” the alleged scraping would have resulted in “catastrophic system failures,” concluding that, with these revised allegations, “X Corp.’s proposed complaint now sufficiently alleges server impairment from scrapers accessing its service. . . Bright Data does not contest that if X Corp. states trespass to chattels as to data scrapers, it plausibly does so as to Bright Data, too. This order will assume as much.” You can read Judge Alsup’s thorough, and surprisingly entertaining, <a href="https://www.courtlistener.com/docket/67637345/156/x-corp-v-bright-data-ltd/" target="_blank">ruling</a>. Now that this case is set to move forward, we’ll see if it will have wider implications on the legalities of data scraping and platform protection.META PREVAILS IN IMMUNITY SUITUniversity of Massachusetts Amherst professor <a href="https://en.wikipedia.org/wiki/Ethan_Zuckerman" target="_blank">Ethan Zuckerman</a> has lost his bid for immunity from potential lawsuits alleging breach of contract and violation of federal criminal computer fraud laws related to his “Unfollow Everything 2.0” browser extension. The extension is designed to allow users to turn off the newsfeeds assembled for them by Facebook’s algorithms with one click, blocking unwanted content and advertisements. Unfollowing functionality is already in place on Facebook but requires unfollowing groups and pages individually. In the <a href="https://casetext.com/case/zuckerman-v-meta-platforms-inc" target="_blank">November 22 ruling</a>, Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California wrote that Zuckerman’s “alleged injury is too contingent upon uncertain events to satisfy the constitutional ripeness requirement” and that the request for relief is too speculative because Zuckerman has not actually released the browser extension. Last May, Zuckerman filed a <a href="https://knightcolumbia.org/documents/gu63ujqj8o" target="_blank">preemptive suit</a> against Meta requesting immunity under Section 230, asking the court to declare that his extension would not violate Facebook’s <a href="https://www.facebook.com/legal/terms?_rdr" target="_blank">Terms of Service</a> or federal computer fraud laws, but this action was also rejected. The current case was dismissed without prejudice, so Zuckerman could refile it if he ever releases the Unfollow Everything 2.0 extension, but after two court losses, he faces significant headwinds.UBER’S ARBITRATION CLAUSE UPHELD BY APPEALS COURTIn a <a href="https://aboutblaw.com/bgm7" target="_blank">5–2 decision</a>, the New York Court of Appeals has ruled that a plaintiff’s legal claims against Uber must go through arbitration—even though her action was currently pending before a court. The ruling stems from a November 2020 lawsuit brought by plaintiff Emily Wu, who originally agreed to a prior version of Uber’s Terms of Service without mandatory arbitration. Uber amended its <a href="https://www.uber.com/legal/en/document/?name=general-terms-of-use&country=united-states&lang=en" target="_blank">Terms of Service</a> in January 2021, updating its mandatory arbitration clause, which Wu agreed to.At the heart of the case is the plaintiff’s argument that the arbitration clause should not apply to claims pending in court, even though the amended Terms of Service purported to apply to “any claims” without limitation. Among other things, Wu claimed that Uber’s notice to Wu violated <a href="https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_4_2_communication_with_person_represented_by_counsel/" target="_blank">Rule 4.2 of the Rules of Professional Conduct</a> for attorneys, which bars the other party in a pending lawsuit from directly contacting a party they know is represented by counsel. The Court of Appeals <a href="https://www.reuters.com/legal/government/column-uber-clickwrap-contract-gets-blessing-nys-top-court-theres-twist-2024-11-26/" target="_blank">disagreed with Wu</a>, maintaining that (a) a mass email notification sent by Uber clearly explained there would be changes to the arbitration agreement and that Wu entered into a contract when she agreed to the revised terms; (b) Uber did not know that Wu was represented by counsel when it sent the mass notice; and (c) even if the claim had merit, Wu’s requested remedies were too extreme and she did not even ask for the more targeted and sensible remedy of simply voiding the arbitration agreement and allowing the dispute to move forward in court.In his majority opinion, Judge Anthony Cannataro wrote, “For essentially as long as there have been written contracts, parties have entered them without first carefully reviewing their terms. That failure can have legal consequences, whether the party is a sophisticated entity or an ordinary consumer, and whether the contract is presented on paper or through an electronic pop-up window.”

Lawrence Gallick is of counsel in the firm’s Austin office and a member of the Technology Transactions Group.

Anthony Ramirez is a partner in the Technology Transactions Group in the New York office of Morrison Foerster. Anthony advises clients on general commercial and transactional matters. He regularly advises companies on the IP aspects of their M&A transactions.











Anthony Ramirez

Aaron is the chair of the firm’s Technology Transactions Group and co-chair of the Interactive + Digital Media Group. He advises clients on a wide range of complex transactions involving intellectual property and technology, including structuring and negotiating strategic licensing, development, collaboration, procurement, and distribution deals.

Aaron Rubin

Character Technologies has been hit with two lawsuits, including a wrongful death suit (among other claims), in less than two months over its popular Character.ai chatbot. The first was filed in the U.S. District Court for the Middle District of Florida (Garcia v. Character Technologies Inc.) by the mother of a Florida teenager who tragically committed suicide after the chatbot allegedly encouraged the child to do so. 

When a bankrupt company’s most valuable assets include consumer information, a tension arises between bankruptcy policy aimed at maximizing asset value, on the one hand, and privacy laws designed to protect consumers’ personal information, on the other. Such tension played out recently in the Chapter 11 bankruptcy case of RadioShack, where the bankrupt retailer’s attempt to sell customer data invoked objections from 38 state attorneys general, the Federal Trade Commission (FTC) and others who claimed the sale would violate RadioShack’s stated privacy policy of never selling customers’ personal information. These issues are not new.Consumer Data in Dot Com Era—ToysmartBack in the dot-com era, online toy retailer Toysmart sought bankruptcy court approval to sell customer data. Toysmart’s privacy policy expressly told customers that they could “rest assured” that their information would “never be shared with a third party.” Nevertheless, once it ceased operations and entered bankruptcy in May 2000, Toysmart solicited bids for the sale of such personal information, including its customers’ names, addresses, billing information, shopping preferences and family profile information. The FTC opposed the sale, arguing that the breaking of the promise to never share information would be deceptive, in violation of Section 5 of the FTC Act.The FTC and Toysmart reached a deal that, along with other restrictions, would limit the sale of customer data to a family-friendly company that would agree to be bound by Toysmart’s privacy policy. Even so, 46 states objected to such a resolution, arguing that any sale of customer data that did not provide an opt-out for customers would violate Toysmart’s privacy policy and, as such, would constitute an unfair or deceptive business practice, in violation of state “little FTC Acts.” Ultimately, Toysmart withdrew the customer information from the auction and destroyed it.RadioShack—Following the Toysmart ExampleRadioShack’s sale process replayed several of the Toysmart themes and similarly met a negotiated—not judicially determined—resolution. Following the sale of its 1,743 store leases this spring to General Wireless, an affiliate of hedge fund Standard General, RadioShack initiated an auction process for the sale of its intellectual property, including the RadioShack name and a collection of customer information.During the course of its long tenure as a consumer electronics retailer, RadioShack collected names, email addresses, physical addresses, telephone numbers, credit card numbers and purchase history data for over 117 million customers. All such information had been collected under a privacy policy that promised RadioShack would “not sell or rent your personally identifiable information to anyone at any time.” Indeed, in a privacy policy on display in RadioShack’s retail stores, the company noted: “We pride ourselves on not selling our private mailing list.”RadioShack’s customer information, however, is a valuable asset. Accordingly, as part of the bankruptcy process, the RadioShack trustee sought court approval to sell a subset of such information in its database, including 67 million complete customer names and physical addresses, and around 8.3 million email addresses, to General Wireless for $26.2 million dollars.The proposed sale drew objections from state attorneys general, the FTC and companies such as AT&T and Verizon. Fundamentally, the FTC and state objectors argued that the sale would contradict RadioShack’s privacy policy and, as such, would constitute a deceptive business practice. AT&T, Verizon and others asserted that the sale would violate the agreements signed between RadioShack and each of the objectors, as well as RadioShack’s own privacy policy.The debtor and various objectors mediated these issues and ultimately reached a deal modeled on the Toysmart approach. In the end, Bankruptcy Court Judge Brendan L. Shannon approved the parties’ settlement, authorizing the sale subject to certain conditions, including that General Wireless must:<ul><li>Send emails to all included email addresses notifying customers of the purchase and offering them seven days to opt-out of the transfer of their personal information;</li><li>Mail those customers for whom it has a physical address, but no e-mail address, a notification that it has purchased the assets of RadioShack and offering such customers 30 days to opt-out of the transfer of their information;</li><li>Provide a notice on the RadioShack website, with both an online opt-out option and a toll-free telephone number to call to exercise the option; and</li><li>Agree to be bound by the existing RadioShack privacy policy with regard to purchased customer information.</li></ul>Furthermore, the deal prohibits RadioShack from transferring sensitive information, such as debit or credit card numbers, dates of birth, Social Security numbers or other government-issued identification numbers.CommentaryIn the intervening 15 years since the Toysmart brouhaha, very little legal guidance has developed to define the contours of pre-bankruptcy privacy promises in bankruptcy sales. As in the Toysmart situation, the privacy-related objections raised to the RadioShack sale were consensually resolved, leaving parties without a judicial resolution to these issues. Nevertheless, certain themes are emerging.First, by virtue of settling, the FTC and states seem to recognize that consumer privacy rights are not absolute—they must be balanced with the best interests of a debtor’s estate and creditors in bankruptcy.Second, a theme in both settlements is honoring consumers’ original expectations—that is, requiring the purchaser to adopt the privacy policy in place at the time the information was collected.Third, the ability for customers to opt-out of the transfer of their personal information seems to be key. This was a sticking point in the Toysmart matter, leading to the ongoing controversy even after resolution with the FTC.More broadly, however, perhaps the main lesson from RadioShack is this: Privacy policies ideally should anticipate bankruptcy scenarios and alert consumers that their information may be sold in bankruptcy or other divestitures. Such a direct acknowledgement would serve consumers by advising them of the possible fate of their personal information, thereby allowing them to make an informed decision about what information to volunteer. It would also serve the eventual debtor and its creditors, simplifying the sale process and maximizing the sale value of collected information.

07_15_onewayistock_000016745483large-300x200-1.jpg

“Never Say Never”: Lessons From RadioShack’s Sale of Customer Information

“Never Say Never”: Lessons From RadioShack’s Sale of Customer Information

When a bankrupt company’s most valuable assets include consumer information, a tension arises between bankruptcy policy aimed at maximizing asset value, on the 

Social media accounts can be “property of the estate” in a bankruptcy case of a business, and thus belong to the business, even when the contents of the accounts are intermingled with personal content of managers and owners. This principle was recently confirmed by the Bankruptcy Court for the Southern District of Texas in In re CTLI, LLC (Bankr. S.D. Tex. Apr. 3, 2015), which featured a battle among equity holders over Facebook and Twitter accounts promoting a business called Tactical Firearms.Tactical Firearms was a gun store and shooting range. Prior to filing for bankruptcy, the business had used <a href="https://www.facebook.com/pages/Jeremy-Alcede-Entrepreneur/142934489112780?pnref=lhc" target="_blank" rel="noopener">Facebook</a> and <a href="https://twitter.com/jeremyalcede" target="_blank" rel="noopener">Twitter</a> accounts in its marketing. The original majority shareholder and managing office, Jeremy Alcede, had mixed his quasi-celebrity personal activities and personal politics with the promotion of the business, frequently taking to Facebook and Twitter for both personal purposes and for the promotion of the business. When the company filed for bankruptcy, Alcede ultimately lost ownership and control of the company to another investor through a Chapter 11 plan of reorganization.Despite the loss of the business, Alcede fought to retain control over the Facebook and Twitter accounts. However, although he had changed the names of the accounts to reflect his personal name rather than that of the company, the Bankruptcy Court held that the accounts belonged to the business. The court applied Bankruptcy Code § 541, which provides that a bankruptcy estate includes “all legal or equitable interests” of a debtor, in holding that the social media accounts belonged to the debtor and thus constituted property of the bankruptcy estate.As the court recognized, Alcede had originally created the Tactical Firearms business, and the accompanying social media accounts, as “an extension of his personality” and, “like many small business owners, closely associated his own identity with that of his business.” The court, however, rejected Alcede’s definitions of “personal” versus “business related” media posts, finding that the best marketing for business through social media is “subtle” and can involve the use of celebrities to promote the business.The core results of the CTLI decision were as follows:<ol><li>Rejecting Alcede’s property and privacy arguments, the court determined that the social media accounts were property of the bankruptcy estate, much like subscriber or customer lists, despite some intermingling with Alcede’s personal social media rights. The court then exercised various remedies and contempt powers to protect the successor-owned business from Alcede’s further interference and to assure that the successor could take control of the assets, including requiring delivery of possession and control of passwords for the accounts.</li><li>The court concluded that the “likes” that the Facebook page received belonged to the bankrupt entity, even though Alcede had registered as a Facebook user and page administrator with his personal Facebook profile. The court noted that Tactical Firearms had a Facebook page that was (a) directly linked to the Tactical Firearms web page, (b) used by Alcede and certain employees to post status updates for promoting the business, and (c) created in the name of the business rather than (until it was later improperly changed) in the name of the individual. Personal content interjected into the business page content did not change that result. Additionally, business messages to customers were communicated through the Facebook page and business-related posts.</li><li>The court noted that, while the business content on Tactical Firearms’ Facebook page had to be accessed through Alcede’s personal Facebook profile, which he had created as the registered administrator, that fact was not controlling. The business pages could be managed by multiple individuals with their profiles, and access to personal information was not necessary to manage those business pages.</li><li>The court also held that the Twitter account belonged to the business, given that the Twitter handle was “@tacticalfirearm” and that the account description included a description of the business.</li><li>The court also rejected Alcede’s privacy concerns by analogizing to cases finding that parties had waived the attorney-client privilege by sharing privileged information with non-clients, or to cases where an employee used the employer’s computer system and thereby waived privacy rights as to personal emails. Because the social media accounts were for the benefit of the business, Alcede lost any personal privacy right in his content and was forbidden to modify either the Facebook or Twitter account by adding or deleting any material.</li></ol>Therefore, the court ordered Alcede to transfer control of the account to the new owner of the reorganized business.The decision is noteworthy because disputes regarding social media assets, like many other rights newly created in the digital age, have generally been addressed below the public radar in bankruptcy cases and other commercial settings. This is changing, and parties in bankruptcy cases and related proceedings are increasingly focused on capturing the value of these kinds of assets.CTLI also highlights the need to properly structure and document the various rights associated with social media accounts, as is customarily done with the intellectual property rights of inventors, authors and other creators of content or employees who are providing innovation to the business that employs them. The decision illustrates that equity holders and managers should discuss and plan for how to deal with their separate assets in advance of bankruptcy or other litigation.Even if an individual wishing to preserve and shield his or her personal social media assets from related business entities has properly structured the use of the assets, a variety of other issues may arise in that individual’s personal bankruptcy. In such a case, most of his or her personal social media assets would be subject to the bankruptcy and could be lost in sales for the benefit of creditors. Other social media issues that arise in bankruptcy cases of individuals are also worth considering. For example:<ul><li>Exempt Assets. Only individuals (as opposed to business entities) can have personal assets that are exempt from the reach of creditors in bankruptcy. A social media account or blog and its copyrighted material could be argued to be a “tool of the trade” for a blogger and thus be exempt; however, even if that argument were to succeed (perhaps unlikely), most exemptions in bankruptcy are capped at a very low value, and the statutory exemptions are usually narrow and predate more modern classes of assets. Exemptions are thus unlikely to protect these accounts.</li><li>Automatic Stay. When a bankruptcy case is filed, all acts against a debtor or its assets, including litigation against a debtor or efforts to take control of its property, are automatically stayed. However, secured lenders, who often have blanket liens on all of a borrower’s assets (including social media assets), may have the ability to get relief from the automatic stay in order to foreclose on assets or pursue other remedies.</li><li>Rights of Publicity. In a bankruptcy of a high-profile individual, his or her social media assets will become part of the bankruptcy estate and may be sold. However, the individual may still be able to use his or her “persona,” or in the words of the CTLI court, “the interest of the individual in the exclusive use of his own identity, in so far as it is represented by his name or likeness, and in so far as the use may be of benefit to him or others.” While that “persona” interest, particularly of celebrities in states like California, has value as a type of intellectual property, there are questions as to the extent to which the assets could be marketed, particularly at the exclusion of the individual from using his or her own name and likeness in the future. Additionally, it will be inherently awkward for both the buyer and that person to compete using the same assets. Nevertheless, those assets may have strategic value to the debtor’s adversaries.</li></ul>As social media assets become increasingly valuable, such assets will mean more to both the owner and to the owner’s creditors. Valuable assets are always in play in bankruptcy cases. A bankrupt debtor may face significant challenges in starting over without the use of those social media assets in which so much was invested. These assets will increasingly be a source of disputes and will require close scrutiny.

istock_000038943470_medium-300x199-1.jpg

Social Media Assets in Bankruptcy: Facebook and Twitter Accounts Subject to Reach of Creditors

Social Media Assets in Bankruptcy: Facebook and Twitter Accounts Subject to Reach of Creditors

Social media accounts can be “property of the estate” in a bankruptcy case of a business, and thus belong to the business, even when the contents of the account