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This post was written by Anthony S. Traymore and Joseph I. Rosenbaum.

A few weeks ago, Legal Bytes reported that, buried in the new financial services "reform" legislation, is the establishment of a brand new regulatory agency – the Consumer Financial Protection Agency (see Congressional Hammer Poised to Strike at Financial Advertising). Guess what. Not to be outdone, the regulators are in the act – pardon the pun – already. Witness recent statements by Richard Ketchum, Chief Executive of the Financial Industry Regulatory Authority (FINRA). In recent statements, Ketchum acknowledged that Wall Street is eager to use social media like Facebook, Twitter and Linked In to interact with customers and, that to a large extent, the growth of the use of these sites is inevitable. But at a recent Securities Industry and Financial Markets Association (SIFMA) meeting, he noted, "We continue to witness the advent of technologies that will challenge your ability to ensure compliance with regulatory requirements," and "Social networking is one such innovation."

At that same meeting, Ketchum raised the issue that retention functionality available on social media services may not be sufficient to ensure a financial service firm's compliance with applicable regulations, including the FINRA Rules. If you aren’t a broker-dealer, don't read the next sentence. But if you are: Imagine how social media services used by brokers to communicate with clients could impact FINRA Rules concerning Communications and Disclosures (see, Section 2200). FINRA has now set up a taskforce comprised of industry professionals to explore how firms may utilize social media to better communicate with their customers without "compromising investor protection."   

Such studies and evolutionary (or revolutionary) regulation are increasingly common these days. As our loyal readers already know, Legal Bytes reported previously (FTC Releases Updated Endorsement & Testimonial Guidelines and Reed Smith Analysis of the New FTC Endorsement and Testimonial Guidelines), that the FTC’s revised Guides Concerning the Use of Endorsements and Testimonials in Advertising will become effective Dec. 1, 2009. These revised guidelines represent updates to the prior guides, and acknowledge the proliferation of false claims, phony testimonials, and spurious endorsements (or negative comments) by consumers, experts, organizations and celebrities, through the use of blogs and other "word of mouth" marketing tools. As described in a recent Wall Street Journal article, the SEC disclosure rules apply to Tweets, blog postings, wall postings and other communication platforms provided by social media sites. Other regulatory agencies are similarly seeking to address the use of social media sites by the entities they regulate (e.g., the FCC, the New York State Insurance Department).

Do you have a social media policy?  The complexities are enormous. Internal (during work) and external (non-working hours). Employees, agents, contractors and suppliers. Domain names, URLs and trademarks (which include service marks, for you purists in the audience). Approved content or ad hoc comments. Official presence or not – condoned or not. Today, activities outside the scope of employment are often considered not attributable back to the company absent special circumstances or relationships. Will social media break down those barriers further? If so, what can companies do to reach their customers while continuing to protect their most valuable assets – their employees and their brands? Does a company have the right to regulate conduct outside the workplace, even if it involves reference to the company? Oh, and by the way, you do know that social media, enabled by the borderless web, doesn’t really pay attention to national boundaries, AND that means it's not just U.S. law you may need to worry about – even if you are a U.S. company. If you are an international, multinational or global company . . . good luck. No, not good luck. Call us. Our Advertising Technology & Media Law group has unparalleled breadth and depth in understanding, working with, and advising clients in this brave new world. 

So if any of this is of passing interest, stay tuned. If it is or becomes a pressing need, please contact Joseph I. Rosenbaum or Anthony S. Traymore, and let us help you avoid being anti-social. Of course, if you are already a Reed Smith client, feel free to contact the Reed Smith attorney with whom you regularly work, and he or she will be happy to coordinate your legal needs with us.

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This post was written by Andrew Boortz and Joseph Rosenbaum.

Over the last several months, France’s Parliament has been focusing on the issue of Internet piracy. In May, both houses of the French parliament passed the so-called “three strikes” law which would have given an independent body the ability to disconnect file-sharers from their ISPs. In June, the law was declared unconstitutional by the Constitutional Council because, under French law, the power to force such disconnection could only come through issuance of a court order. In response, French President Nicolas Sarkozy gave the first Presidential speech to the French Parliament in 150 years and passionately defended regulation of Internet piracy. 

After President Sarkozy's speech, the French Senate drafted and passed a modified version of the “three strikes” law which would allow alleged infringers to present their case to a French court, prior to losing their Internet connection. Judges in these hearings would have the power to: (1) order disconnection of the alleged infringer's Internet access; (2) fine the alleged infringer up to €300,000; and/or (3) sentence the alleged infringer to a two-year prison term. Just yesterday (September 15^th), the French National Assembly gave preliminary approval to the measure by a vote of 285-225 and now, a joint committee will unify the Senate and Assembly versions and present a final bill to both houses for a vote on September 22^nd.

In looking back over the piracy-related events of this year, it may well turn out that 2009 will be remembered as a watershed year in the struggle between Internet pirates and rights holders.  With the Jammie Thomas and Joel Tenenbaum verdicts in the States, the pseudo-shuttering of the Pirate Bay in Sweden, the implementation of a self-imposed, self-regulatory “three strikes” policy by Ireland’s largest ISP (created under threat of massive litigation) and now France’s revised and revitalized new “three strikes” law, the global community is indeed tilting towards greater sanctions and regulation of Internet piracy.

This raises questions for technology innovators. For example, Facebook, which according to a CNN report out today has a social network population nearly as large as the population of the United States, will soon launch a voice chat feature.  Most likely, the feature could be used to stream media across the globe as well as the nation? Would Facebook be liable for creation and distribution of such a feature, which is similar to that which created liability for the Pirate Bay creators for their torrent-tracking website?

Need help? Confused by the torrent of information, technology and legal rights?  Need to know more? Contact Andrew (“Drew”) Boortz, in our Washington, D.C. office, call me or contact the Reed Smith attorney with whom you regularly work.

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Last week, rumors started spreading that Facebook had changed its policy and was now allowing third-party advertisers to use your photos (i.e., images users post onto Facebook) without permission. The flap over the use of Facebook user-profile photos in advertising came into the limelight when a man, using a third-party application, saw an advertisement displayed for an online dating website, and much to his surprise—it happened to include a picture of his wife. There’s Good, Bad & Ugly.

Good news: His wife wasn’t out looking for a date. Bad news: The photo emanated from a Facebook profile photo available to companies that use the Facebook platform ad network. Ugly news: You could be next!

So here’s the scoop:

Facebook has not changed its policy and does not allow the use of your photo(s) without permission. Facebook had previously suspended two ad networks from the Facebook platform for deceptive practices and user complaints. Those ad networks were said to be using third-party applications in which these photos were embedded and, according to Facebook, that violates Facebook’s privacy policy; and the ads were misleading since they made it look as if someone’s Facebook friend had taken action when they really had not. Facebook itself issued a statement noting, “We are as concerned as many of you are about any potential threat to your experience on Facebook and the protection of your privacy. That’s why we prohibit ads on Facebook Platform that cause a bad user experience, are misleading, or otherwise violate our policies.” 

Although some Facebook users might not know it, Facebook has been running ads from its own ad system for more than a year—it lets your Facebook friends know of any direct connections you have with products and services. So if you become a "fan" of a Facebook Page, your Facebook friends might see an advertisement showing both the action you took (becoming a fan) and your profile photo along with the ad. According to Facebook, it will only do this when a Facebook user has taken some affirmative action indicating a connection with the product or service being advertised. Facebook also claims no data is shared with third parties in this process.

The best we can determine, Facebook technically only allows any user content to display in or with third-party advertising if the content isn’t being cached. While Facebook likely tries to control these networks, some obviously are not adhering to this policy, with photos then appearing not only on third-party ad networks within Facebook when they haven’t been authorized, but also in some cases outside the Facebook domain itself.

If you are a Facebook user and have actually read (and understood) its Terms and Privacy Policy, which is part of the Facebook Principles, you might know that Facebook ad networks can use these user photos in ads—they just can’t do so in violation of their privacy policy or in a deceptive manner. While clearly Facebook has an interest in keeping users comfortable with the online social media environment it has created, it will likely either do a better job of disclosing and explaining the potential uses that may be made of user information (including images, connections, and the like), or it will need to monitor and control the use of its advertising platform by third-party advertising networks that are allowed to use the platform.

Every user on Facebook is opted-in to allowing the use of their photos as described above, by default, when they sign up. Perhaps part of the flap is the fact that many users may simply have not known this. Or perhaps there's a disclosure or communication problem within the community. Facebook might also provide more visible or multiple ways of enabling users to opt-out of this feature or create more refined privacy settings so that users are given more options and more information that allows them to control the use of their photos (and other information), certainly outside and potentially inside the Facebook social media community. Most users simply may have had no clue this was the default or that this was happening. Even when they realize this is occurring, many can’t figure out how to change the settings. Currently, the only way to fix the problem is to have users change the privacy settings that are found under “Settings,” “Privacy Settings,” “Newsfeeds and Wall”; looking for the tab that says “Facebook Ads”; and re-setting your “Appearance in Facebook Ads” preference to “No One.”

HOWEVER, just so everyone is clear—this still may not opt you out of Facebook ads displayed to your friends with your photo when you expressly take action within Facebook (e.g., becoming a "fan"), but it will opt you out of third-party network ads. That said, it remains to be seen how Facebook will deal with the delicate reality of handling third-party ad networks that aren’t Facebook affiliates, since these represent a significant source of revenue for creators of Facebook applications. 

To put it more simply, if you provide a third-party application with the right to access your information (which you generally need to do in order to use the application), then technically the advertising networks can access that information, too. That’s why users should pay attention to the applications they add, and get rid of applications they are no longer using. You can do this through the “Settings” menu as well. Head for the “Application Settings” page, and if you see a menu that says “Recently Used,” change it to “Authorized” and you will see the applications you have approved with an “X.” Just click to remove those you no longer wish to have authorization. That way, you won’t wind up as a poster child for some product or service that you did not and would not ever intend to endorse.* 

If you need to know more, please contact Joseph I. Rosenbaum at jrosenbaum@reedsmith.com, or you can view his bio at reedsmith.com. Of course, you can always contact your favorite Reed Smith attorney, who will be more than happy to help you. 

* Speaking of endorsements, Joseph I. Rosenbaum was actually speaking of Endorsements (and Testimonials) at a recent CLE Conference in Ireland, sponsored and hosted by the School of Law at Limerick University and previously featured in Legal Bytes. A copy of Joe’s presentation (without the embedded videos) has been posted in .PDF format in an update to the previous posting.

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As we reported previously, Facebook announced the availability of a personalized Facebook URLs, raising serious issues — yet another example of technology colliding with traditional intellectual property laws. In this case, laws intended to protect trademarks and brand names. If you followed the news, the promotional momentum created by Facebook's offer has made every astute brand owner ponder the implications! While you, of course, should look at my previous Legal Bytes post on Personalized URLs, if you missed the informative one-hour seminar on the subject presented by Douglas J. Wood and myself, Co-Chairs of the Reed Smith Advertising Technology & Media Law Group, you can find it here: “Facebook Personalized URLs: Titanic Brand Opportunity or Tip of an Iceberg?”

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Last week, Facebook announced the availability of a personalized Facebook URLs. This latest offering from Facebook raises serious issues—issues that are typically encountered when technology collides with traditional intellectual property laws intended to protect trademarks and brand names. Much like the confusion and abuse that proliferated when cybersquatting became rampant over the ownership and administration of domain names, we now have social networks and service providers allowing users to generate content and offering customized URLs within their domains in a digital and borderless world. Significantly, the promotional momentum created by Facebook's offer has caused every astute brand and trademark owner to ponder whether they should be in a rush to register their personalized URL on Facebook, or let it ride and deal with potential infringements when—and if—they occur! You need practical guidance and insightful approaches to these problems.

The Media & Entertainment Industry Team and the Advertising Technology & Media Law Group at Reed Smith have put together an informative one-hour teleseminar entitled “Facebook Personalized URLs: Titanic Brand Opportunity or Tip of an Iceberg?” airing on Tuesday, June 23 at 12 p.m. EDT with partners Doug Wood and Joe Rosenbaum, to help you understand the issues, formulate an approach and make informed decisions and you are invited to participate. Participation is free, although long-distance telephone charges apply outside of the United States, the UK, France, and Germany, where 800 numbers are used. Don’t miss this call!

Call-in ports are limited, so please click here to register or contact Anna Kazachkov at akazachkov@reedsmith.com no later than Monday, June 22, to receive a dial-in number and a passcode. If you require additional information, you can contact Anna by telephone directly at +1.212.702.1399.

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On Tuesday, June 9, the popular social networking website, Facebook, announced that on Saturday, June 13 at 12:01 a.m. U.S. EDT, it will allow its registered users, subject to certain criteria and qualifications, to create personalized URLs for profiles and pages on Facebook (e.g., http://www.Facebook.com/insertyournamehere.   Currently, a user’s Facebook URL consists of the Facebook.com URL followed by numbers (e.g., http://www.facebook.com/profiles.Php?349485).

Allowing users to register personalized names on the web raises, among other things, infringement issues under federal and state trademark and related intellectual property laws, particularly for owners of well-known brands. Any registration process creates fears of cyber squatting and other attempts to hijack trademarks and brand names. Sometimes these fears are well founded; other times they are not. You may have already received bulletins from law firms and bloggers eager to alert you to the fact that Facebook has also announced it has created an online submission form that allows owners of registered trademarks to notify them of their IP rights. Ostensibly, Facebook intends to use the information submitted to preclude others from attempting to use registered marks in personalizing their URLs on Facebook.

While we applaud advising clients and friends of this development, we believe the matter is considerably more complicated than previous briefs and hasty reports may indicate. As is so often the case, the devil is in the detail, and the information below will give you a deeper look at the issues before racing to submit notifications of your IP rights to Facebook.

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This post was written by E. David Krulewicz and Cindy Schmitt Minniti.

Facebook, MySpace and Twitter have become household names, a ubiquitous part of the daily lives of many and often a tool for keeping in touch with friends and family. These websites are increasingly being used by individuals to document their daily lives and activities, voice their concerns and post their opinions for the world to read and to respond. The business community has also turned to these “social media” websites as means for marketing their brands and, in some instances, for obtaining information about current employees and prospective job applicants. A series of recent cases reminds us there are significant risks related to the posting and/or use of information discovered on “social media” websites.

For example, in Pietrylo and Marino v. Hillstone Restaurant Group, a case pending in the Unites States District Court for the District of New Jersey, two individuals sued their former employer after they were terminated for posting complaints about their workplace on an invitation-only discussion forum on MySpace.com. Much to the employees’ surprise, managers from Hillstone Restaurant Group were able to access this discussion board (although the parties dispute whether the managers had a right to do so) and were less than pleased with what they read. The employees were quickly terminated and a lawsuit followed. 

In their complaint, the former employees assert their employer not only violated state and federal Wiretap and Stored Communications Acts by accessing the invitation-only forum, but wrongfully terminated them in violation of New Jersey’s public policy favoring free expression and privacy as embodied in the U.S. and the New Jersey Constitutions. Their employer has denied the claims and asserts the plaintiffs were “at-will” employees who could be terminated for any reason or no reason at all.

Ultimately, the question of liability may hinge upon whether the employees had a right to privacy for statements made online and whether the employer has a right to make disciplinary decisions based on an employee’s off-duty conduct.

Although legal commentators and privacy advocates debate how the trial will unfold when the case goes to trial later this summer, they all agree the case highlights real- world issues that can follow an individual’s seemingly innocent decision to post his or her thoughts on a social networking website. This is far from an isolated incident – indeed, the sports media recently reported a similar incident involving the Philadelphia Eagles’ termination of a long-time employee for disparaging the team’s management and its decision to release a prominent player on his Facebook page.  

While it is unclear if any of the companies in the cases above had a policy or provided instruction to their employees on these issues, it should not surprise you that increasingly business employers are finding they must do so. Clearly, before making decisions or taking action against employees for online, but off-duty conduct, employers should seek legal counsel from lawyers who understand these issues and can guide you in this dynamically evolving environment – where federal and state (and sometimes municipal or local) law may apply and little, if any, precedent currently exists. Worried? Need help? Need to understand more? Contact E. David Krulewicz or Cindy Schmitt Minniti or the Reed Smith lawyer with whom you work. 

Update:  Today, May 20th, after this story was posted, the U.S. House of Representatives also approved the bill regulating some common credit card and gift card industry practices. It is likely President Obama will sign the bill once it arrives on his desk.

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Facebook, the very informal and ostensibly open social network, hinting at an apology for what its CEO acknowledged were “overly formal and protective” Terms of Service, did an abrupt about-face recently, retracting them and reverting to its old Terms of Service—presumably reacting to a sea of complaints from just about everyone. Complaints? Over legal terms—does anyone still read them? Well, they do, and they didn’t like what they read—particularly the part that claimed unrestricted, perpetual ownership of your personal data, even if you decide to delete your entire account and go away. 

While we respect Facebook’s right to better manage, control, and disclose to consumers how and for what purpose it treats and handles personal data, it highlights a number of things the online world continues to teach us. First, don’t assume those innocuous changes buried somewhere in terms of service, terms of use, privacy policies, codes of conduct, rules of the road, or whatever you choose to call them, aren’t being scrutinized—by consumers, by your customers, by the media and, lest we forget, by regulators and legislators. While Facebook has not admitted it was caught a bit red-faced, it is taking your feedback in a “Facebook Bill of Rights and Responsibilities” group to which you can contribute your thoughts. For those in the know, Facebook’s population has grown to more than 175 million users—does that make it the sixth-largest country in the world? Hmm, I wonder if that country has a growing budget deficit too; we’ll have to wait for the State of the Reunion speech, when results are posted, to find out.

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Facebook has built a highly popular business, but it turns out making that popularity profitable appears to depend, in large measure, on advertising. Sound familiar? So Facebook announced a new program, Beacon, an online tracking tool. No, online tracking certainly isn’t new: companies track where your browser has been and your online activity, and routinely serve up ads based on “preferences”—where you have been, what you look for, and what you purchase. But that takes place behind the scenes—you just see the results: relevant, targeted advertising.

Facebook has taken online tracking one step farther: Beacon sends messages telling your Facebook buddies what you are buying and, in some cases, what you are doing. So don’t plan that surprise trip to Puerto Rico just yet—buying a ticket might ruin the surprise. In fact, don’t come back from the trip and rate the hotel—your friends who weren’t invited will know you’ve been there.

Facebook faced criticism last year when its “News Feed” function came under fire. Media and industry pundits and Facebook executives note often schizophrenic and hypocritical marketplace attitudes. Indeed, there is some irony to be considered when the generation that posts profiles, adding everything from drinking, sexual preferences, and religious affiliations, to family videos, in blatantly public web-spaces, complains about privacy. But consumers still distinguish between their choice to share, and allowing a host to decide what, when, where and how to share information about them, or whether to characterize activities as some form of an “endorsement without consent” to their friends.

As usual, privacy and consumer advocacy groups were poised to file complaints with the FTC, right on the heels of investigations already launched by several Attorneys General into Facebook’s privacy practices. The New York Attorney General has issued a subpoena to Facebook for copies of complaints about “inappropriate solicitation of underage users and inappropriate content on the site.” As innovators have learned, success shines a spotlight that creates a glow—and discloses warts; let’s see if they can keep Facebook blemish-free.

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Based on a complaint that Xanga knew it was collecting (and sharing) personal information from children under the age of 13 (they asked for and were given the birth dates from registrants), the FTC reached a settlement agreement in which Xanga.com agreed to pay a civil penalty of $1 million. The complaint also alleged that Xanga didn’t notify children’s parents, nor did they give parents access to or control over their children’s information.

The Children’s Online Privacy Protection Act (“COPPA”) mandates that commercial web sites give parents notice and get consent before collecting personal information from children they know to be younger than 13 years old. The order which is part of the settlement with the FTC forces Xanga to erase any personal information collected and stored that violates the Act. Xanga also will have to put up hypertext links for the next five years to FTC-designated consumer educational materials.

Social networking has been in the news recently for many reasons. Recently, Facebook was faced with controversy when it started serving automated alerts about users’ friends and classmates. Facebook has less than 10 million users, compared with MySpace—which is now owned by News Corp.—which has in excess of 100 million users.

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