Marketing Financial Services through Social Media: Twitter Case May Impact Social Media Platforms

By: Andrew L. Caplan* and David A. Tallman
*Mr. Caplan is not yet admitted to practice; admission to the NY Bar pending.

Litigation making its way through the U.S. District Court for the Northern District of California could have broad implications for the use of social media websites for marketing purposes. The central issue in PhoneDog, LLC v. Kravitz is the extent to which a company can control or limit the use of a social media account created for the company’s benefit but used by an individual employee in that employee’s name. The case illustrates the competing concerns that companies face with respect to social media marketing. Some companies may prefer to allow employees to engage with social media relatively independently in order to mitigate the risk that courts or regulatory authorities will impute employee-generated content to the company or subject the content to substantive regulation. But by doing so, companies may lose the ability to manage key social media relationships.

In PhoneDog, the Northern District of California will decide whether PhoneDog, LLC (“PhoneDog” or the “Company”), a company that reviews mobile telephone products and services, should be awarded monetary damages and other relief as a result of a former employee’s continued use of a Twitter account established during the term of his employment. According to the complaint, PhoneDog asks its employees to maintain Twitter accounts and use those accounts to drive traffic to the Company’s website. The defendant, Noah Kravitz, maintained such an account while employed by PhoneDog, and eventually accumulated 17,000 followers. The parties dispute whether the account was registered with Twitter by PhoneDog or by Kravitz in an individual capacity. In accordance with Company guidelines, however, the account was registered originally under a username (“@PhoneDog_Noah”) that suggested that Kravitz was tweeting on behalf of the Company. Kravitz continued using the Twitter account after he left the Company, although he changed the username to @noahkravitz to disassociate his tweets from PhoneDog.

The Company’s lawsuit claims that Kravitz had no right to access or use the Twitter account after the termination of employment relationship and seeks damages for the alleged misappropriation of trade secrets (i.e., the account password), interference with the Company’s economic relationships, and wrongful conversion. The litigation is still in its preliminary phases and the court has yet to rule on the merits of these claims.

PhoneDog shows that employers often face competing social media marketing considerations. Some companies may want to allow employees to engage with social media on a quasi-independent basis (subject, of course, to an appropriate social media policy), because regulatory authorities are increasingly holding companies responsible for their employees’ social media activity. With respect to consumer financial services, for example, recent guidance from the Financial Industry Regulatory Authority and the Federal Trade Commission suggests that it is more likely that employees’ social media postings will be imputed to a company or subject to regulatory requirements if the company (i) is involved in the preparation of the content, (ii) expressly requires the employees to generate content, (iii) compensates the employees for social media postings, or (iv) otherwise endorses, sponsors, or approves the content (whether explicitly or implicitly). On the other hand, by allowing employees to engage with social media independently, a company may lose the ability to fully manage its public relationships and ensure compliance with applicable laws, such as advertising restrictions.

The use of social media for marketing purposes is a rapidly evolving issue that is only just beginning to be addressed by courts and financial regulators. We will continue to report on this case and other issues pertaining to social media and consumer financial regulation as new developments emerge.