© 2009 Lane Powell PC Social Media What Are the Legal Risks? Craig Bachman Lane Powell PC The trademarks on this page are the property of their respective owners.

© 2009 Lane Powell PC Perceived Value of Social Media Multiple responses allowed

© 2009 Lane Powell PC Reasons Management Uses Social Media Multiple responses allowed

© 2009 Lane Powell PC If You’re Not Using Social Media, Why? Multiple responses allowed

© 2009 Lane Powell PC Part 1: Technology and Intellectual Property Issues Lane Powell PC The trademarks on this page are the property of their respective owners.

© 2009 Lane Powell PC Intellectual Property and Related Issues ● Who Owns Social Media Equity? ● 1 st Party Trade Secrets (Ours) ● 3 rd Party Trade Secrets (Theirs) ● Trade Libel (1 st & 3 rd Party) ● Infringement (3 rd Party) ● Cybersquatting ● Unauthorized Disclosure

© 2009 Lane Powell PC Who Owns Social Media Equity ● Personal Accounts ● Corporate Branded Accounts ● Corporate Celebrity Accounts ● Affiliate Accounts ● Co-Branded Accounts

© 2009 Lane Powell PC Trade Secrets ● Ours (1 st Party) ● Theirs (3 rd Party)

© 2009 Lane Powell PC Traditional IP Issues in a New Context ● Copyright ● Trademark ● Patent ● Domain Name

© 2009 Lane Powell PC Claims Asserted ● Trade Libel ● Invasion of Privacy ● Intentional Misrepresentation ● Cybersquatting ● Copyright Infringement ● Trademark Infringement ● False Des. of Origin ● Trademark Dilution ● Misappropriation of Name or Likeness

© 2009 Lane Powell PC Adopt a Policy and Create a Culture ● Individual Responsibility ● Respect Your Audience ● Protect Our Business ● Protect Our Confidences ● Don’t Fight ● Use Your BEST Judgment ● Don’t Forget Your Day Job

© 2009 Lane Powell PC Part 2: Public Company & First Amendment Issues Lane Powell PC The trademarks on this page are the property of their respective owners.

© 2009 Lane Powell PC Reno v. ACLU (1997) “Through the use of chat rooms, any person with a phone line can become a town crier with a voice that resonates farther than it could from any soapbox. Through the use of Web pages, mail exploders, and newsgroups, the same individual can become a pamphleteer.”

© 2009 Lane Powell PC Is Twittergation the Future? ● Tony LaRussa – fake tweets ● Courtney Love – libel lawsuit ● Mark Cuban – NBA fine

© 2009 Lane Powell PC Twitter Terms of Use ● No impersonation ● No private or confidential information of others ● No threats of violence ● No copyright or trademark infringement ● No unlawful use ● No pornography ● No malware/phishing/spam

© 2009 Lane Powell PC Securities Act – Section 10(b) ● Antifraud provisions -- apply to blogs & electronic shareholder forums ● No “individual” capacity for company representatives ● Waiver not allowed as condition of entry

© 2009 Lane Powell PC SEC – Regulation FD ● Fair Disclosure requirement ● Avoidance of selective disclosure of public information ● Company websites:  Recognized channel of distribution?  Published in manner making available to general public?  Reasonable waiting period for reaction to market information

© 2009 Lane Powell PC Third-Party Postings ● No liability for third-party statements ● No requirement to respond or correct third-party misstatements ● UNLESS Company adopts, endorses or approves of statement

© 2009 Lane Powell PC Exchange Act – Disclosure Rules ● CEO & CFO certifications for information posted as alternative to Exchange Act report ● No certifications for other web postings ● Anti-fraud requirements still apply

© 2009 Lane Powell PC Defamation ● False statement of fact made with malice (reckless disregard for the truth) that causes damage ● Common Defenses:  Truth  First Amendment  Opinion

© 2009 Lane Powell PC Opinion ● Setting ● General tenor & tone ● Can prove statements true or false ● Documents or other sources posted ● Proof of damages

© 2009 Lane Powell PC Cybersmears – Internet Chat Rooms & Bulletin Boards ● Membership free ● Effectively anonymous – pseudonyms created by user ● No controls on postings – didn’t have to be investor ● Not sponsored by company ● No requirements to post, i.e. no special experience or expertise ● Wide range of content in messages – straightforward commentary to personal invective directed at others to “simply bizarre.”

© 2009 Lane Powell PC Anti-SLAPP Statutes ● Strategic Lawsuits Against Public Participation  WA – RCW – communication of information to government agency or SRO that regulates person involved in securities or futures involving a matter reasonably of concern to agency or SRO.  OR – ORS – special motion to strike – modeled after, but not mirror of CA statute -- applies to information provided to government or in a public forum regarding an issue of public interest.

© 2009 Lane Powell PC Facebook -- Privacy ● Consolidation of pages & settings ● Standardization of access options:  Everyone  Friends  Friends of friends  Networks  Custom list

© 2009 Lane Powell PC Does Privacy Exist? ● Social search utilities ● People search ● Deep-web diving ● Compilations of social networks for corporate databases/marketing

© 2009 Lane Powell PC Part 3: Issues for Non Profits Lane Powell PC The trademarks on this page are the property of their respective owners.

© 2009 Lane Powell PC Tax Issues ● Unrelated Business Income (UBI)  General  Royalty  Advertising & Sponsorship ● Affiliated Entities  General exemption issues  Political activities and lobbying

© 2009 Lane Powell PC Unrelated Business Income Tax — Generally ● Unrelated Business Income (UBI)  Tax-exempts are not exempt from all taxes, only from those taxes that would otherwise apply to income received from activities that are substantially related to their exempt purposes.  Income from the sale of advertising is almost always taxable.  Income may be offset by directly-connected expenses.

© 2009 Lane Powell PC Unrelated Business Income Tax — Royalty ● Royalty  The IRS has not specifically addressed this issue with respect to internet activities.  As a general rule, passive royalty income is excepted from the definition of UBI.  To be characterized as a royalty: wThe payments must be for the use of valuable intangible property rights, i.e., use of a name or logo; and wThe organization must be passive, i.e, the organization cannot: – Provide additional services or – Lease a membership or mailing list.

© 2009 Lane Powell PC Unrelated Business Income Tax — Royalty ● Royalty Examples  Payments for use of organization logo on another website.  License payments for use of intangible property.

© 2009 Lane Powell PC Qualified Sponsorship Payments ● “Qualified sponsorship payments” are excepted from the definition of UBI. ● A “qualified sponsorship payment” is a payment in exchange for which the corporate sponsor neither gets nor expects any return benefit other than:  Goods or services, or other benefits, the total value of which does not exceed two percent of the sponsorship payment; or  Recognition, i.e., use or acknowledgment of the sponsor’s name, logo, or product lines in connection with the nonprofit’s activities

© 2009 Lane Powell PC Advertisement ● Unlike sponsorship payments, payments received for advertising are characterized as UBI. ● Characteristics of advertisements include:  Comparative or qualitative language  Price, savings or value information  Endorsements  Inducement to buy

© 2009 Lane Powell PC Unrelated Business Income Tax — Advertising & Sponsorships ● Banners  The IRS has not specifically ruled on this issue; however, in 2000 EO CPE, the IRS stated that “a moving banner is probably more likely to be classified as an advertisement.”  The IRS indicated that banners are more likely than hyperlinks to be characterized as advertising.  Fees based on “pay-per-view” or “pay-per-click” measures are also likely to be characterized as advertisements.

© 2009 Lane Powell PC Unrelated Business Income Tax ● On-line Charity Malls  % of purchase price goes to charity  Structure as payment of royalty fees, rather than referral ● Virtual Storefronts  Section 513(c) Fragmentation Rule wIRS will review each piece of merchandise ● On-line Auctions  Regularly carried on?  Conducted by outside vendor? wMust be “continually controlled” by charity

© 2009 Lane Powell PC Affiliated Entities — General Exemption Issues ● Affiliation through hyperlinks  “When an organization establishes a link to another web site, the organization is responsible for the consequences of establishing and maintaining that link, even if the organization does not have control over the content of the linked site.” Rev. Rul  To avoid risks of UBI, private benefit, private inurement, and political intervention, organizations must monitor their hyperlinks for: wAdvertising; wPolitical statements and campaign activities; wNon-exempt activities.

© 2009 Lane Powell PC Affiliated Entities — General Exemption Issues ● Affiliation through co-ventures  The IRS has not issued guidance on this issue, but there are several precautions necessary to avoid risks of UBI, private benefit, private inurement, and engaging in non-exempt purposes: wThe organization must have a passive role in the relationship; wDo not transfer organization assets to a non-exempt “partner” or affiliate; wDo not refer to the activity as a “partnership” or “joint venture;” and wMonitor the use of the organization logo and trademark to ensure the appropriateness of their use.  Be aware of state regulations – co-venture participation may be require various state filings, even where the organization engages in no other activities in the state.  Be aware of the use of the organization logo and trademark and the potential use of such in campaigns that may be offensive to the public.

© 2009 Lane Powell PC Political Activity & Lobbying – Generally ● 501(c)(3) tax-exempts are limited to “insubstantial” activities attempting to influence legislation ● 501(c)(3) Organizations – ABSOLUTELY prohibited from campaign intervention ● 501(c)(4) Organizations – Primary activity cannot be campaign intervention ● If making a 501(h) election, subject to certain financial limits  With internet communications being so important, 501(h) is more attractive – measures in terms of dollars, not “substantiality,” which is difficult to measure.  If no 501(h) election, ensure that “appearance” of lobbying on site if “insubstantial” in proportion to non-lobbying

© 2009 Lane Powell PC Questions? Craig Bachman Lane Powell