Your business has discovered the value of using social media platforms like Twitter, Facebook, and LinkedIn to market and promote products and services. But who owns these accounts and what happens when an employee with a Twitter handle, LinkedIn account, or legions of Facebook followers leaves? What monetary value can be assigned to “likes” and followers?
Until you’re able to get all the answers from the forthcoming Minnesota Small Business Assistance Office publication being authored by Gray Plant Mooty entitled “Legal Guide to Social Media,” a few recent cases may offer some guidance to businesses using social media (and who isn’t):
• In Eagle v. Morgan, Dr. Linda Eagle sued her former employer, Edcom, Inc., for its continued use of her Linked In account. She sought damages for lost business opportunities, damages to her reputation, and diminished value in her LinkedIn account. The Pennsylvania court found in her favor on several state claims, including unauthorized use of her name, invasion of privacy by misappropriation of identity, and misappropriation of publicity. The court noted that while the company had urged employees to create LinkedIn accounts and had guidelines covering on-line content, the company had never informed employees that their LinkedIn accounts were the property of the employer. Unfortunately for Dr. Eagle the court awarded no damages.
• In Phonedog LLC v. Noah Kravitz, Phonedog went after a former employee who continued to use a Twitter account that had been initially created for use by the company. Phonedog is a business that provides mobile news and reviews of products and services of mobile phone carriers through a website and uses a variety of social media , including Twitter, Facebook and YouTube, to market and promote its services to potential users. While an editor employed by Phonedog, Kravitz created a Twitter account. Kravitz used the handle @phonedog_Noah to disseminate Phonedog marketing material and reviews of mobile devices. Kravitz left Phonedog and simply changed his Twitter handle to @noahkravitz. At that time the Kravitz Phonedog Twitter account had reached 17,000 followers. Phonedog sued Kravitz alleging that the Twitter account belonged to Phonedog and included confidential business information. Phonedog also asserted the value of Twitter followers at $2.50 per follower per month and sought damages of $340,000. The parties reached a settlement agreement and Kravitz was allowed to retain custody of @noahkravitz. After the settlement Kravitz issued the following statement:
“If anything good has come of this, I hope it's that other employees and employers out there can recognize the importance of social media to companies and individuals both. Good contracts and specific work agreements are important, and the responsibility for constructing them lies with both parties. Work it out ahead of time so you can focus on doing good work together -- that's the most important thing."
Lessons Learned: Listen to Noah. Have a corporate policy in place governing use of social media. If your employees are asked to use social media to market and promote your business’s products or services, have written agreements that make it clear that the company owns the account, including customer lists, friends, and followers, and that the employee relinquishes any rights to the account when they leave.
I guess the settlement of the Phonedog case means we still don’t know what a Twitter follower (or a “like”) is worth…
As I was reading this
article in The Minneapolis/St. Paul Business Journal, I was reminded again how a failure to button down intellectual property (IP) often leads to later problems. The article describes a lawsuit against My Pillow, Inc. and Steve Lindell, the Company’s CEO and founder, by investors in a predecessor company, Night Moves Minnesota. The plaintiffs claim that they own 42% of My Pillow because that’s what they were promised by Night Moves when they loaned it $70,000 in 2006.
I don’t know much about My Pillow, although I do recall meeting Mr. Lindell several years ago when he was looking for angel investments at a conference put on by RAIN Source Capital. He seemed like a good guy and it seemed like an interesting product, although I can’t recall whether it seemed like a good investment at the time. I’m guessing some of the angels who turned him down may be wishing they got in on the business, now poised to generate almost $100 million in annual revenue from selling pillows! I haven’t slept on a My Pillow, but I understand it is different from the Sobakawa
pillow, which a close friend once told me was so loud that it kept her awake at night. I may just have to get a pet pillow for the newest member of our family (see my recent
post for more details).
Before all this talk of pillows puts you to sleep, let me get back to the issue at hand. Why would these investors in the prior company believe they own 42% of My Pillow? The lawsuit claims that they invested in and therefore own the intellectual property behind the pillow. Apparently, the patent was issued in Lindell’s name and never transferred to Night Moves and the trademark was originally registered by Night Moves and later transferred to the new company (allegedly without their consent).
These types of IP issues are common in early-stage ventures. Often, in an attempt to maintain control over technology, founder inventors will want to grant a “worldwide, perpetual, royalty free, transferable” license to the business, rather than assigning the IP outright. In my experience, savvy investors typically will not accept such a scenario and force an outright assignment before writing a check. They reason that any value in the IP, even if the enterprise fails, should be shared by the stakeholders, rather than having the IP revert to the inventor is so that s/he can monetize it.
It appears one key issue in the My Pillow litigation will be whether the investors knew the status of the IP ownership at the time of their investment. If they did, then they may be out of luck on the patent rights because the business didn’t own them. If they didn’t, I’m not sure it means that they own 42% of My Pillow, but they might have a claim relating to inadequate disclosure (something we lawyers call “securities fraud”). At a minimum, it is likely to cost a lot and cause plenty of distraction to figure it all out.
If everyone had focused on and dealt with these issues early, nobody would have to lose any sleep over them today...
