Companies—especially those based outside the U.S.—sometimes ask why it is so difficult to bring a lawsuit based on something posted on social media. A recent federal court case from California can help show how courts view these actions. Prehired, LLC, v. Provins, No. 2:22-cv-00384-TLN-AC (E.D. Cal. April 12, 2022) (2022 WL 1093237).
IOSCO, finfluencers, and social media
In December 2021, our post Federal Reserve and social media, highlighted sections of the Federal Reserve Financial Stability Report which demonstrated the Fed’s focus on the role of social media and retail investors in equity market volatility. In March 2022, the Board of the International Organization of Securities Commissions (IOSCO) followed suit, and also turned their attention to the role of social media and retail investors. The IOSCO Retail Market Conduct Task Force Consultation Report aimed to set out a toolkit of proposed policy and enforcement measures with guidance to help mitigate the potential risks of retail investor harm posed by online and cross-border marketing and distribution, and digital offerings. The findings of the report demonstrate both the global nature and the importance of these issues.
Social media and cryptocurrency fraud
Creators of fraudulent crypto assets beware. A recent court decision supported investors, creators and marketers of legitimate crypto assets, and the integrity of the crypto asset market as a whole.
While the creator of BitConnect remains at large and is facing his own indictment for his role in the scheme that allegedly defrauded investors of $2.4 Billion, this case focuses on the promoters and marketers of a commodity known as BitConnect Coin.
Nikola Corporation agrees to pay $125 million to settle SEC investor fraud case
In December 2021, the Securities and Exchange Commission (“SEC”) announced that Nikola Corporation (“Nikola”) agreed to pay $125 million to settle charges that the company allegedly defrauded investors and misled them about its products, technical advancements, and commercial prospects. Nikola did not admit or deny the SEC’s findings. Earlier that same year, the SEC filed against Nikola’s founder and former CEO, Trever R. Milton, for allegedly disseminating false and misleading information about Nikola’s products and technical accomplishments by communicating with investors through social media.
Federal Reserve and social media
In November of 2021, the Board of Governors of the Federal Reserve (the “Fed”) issued its Federal Reserve Financial Stability Report, a biannual report focused on potential risks to the financial system. In this issue, the Fed highlighted the role of social media and retail investors in equity market volatility.
Positively negative: Lack of social media helps defeat default judgment motion
On November 2, 2021, a federal trial court in New York issued an opinion that combined breakfast restaurants, social media, trademarks, and COVID. The judge ultimately ruled against the registered trademark owner’s request for a default judgment, in part based upon the defendant’s lack of social media advertising. BYC, Inc. v. Broken Yolk, civ. no. 21-CV-6203-FPG (W.D.N.Y. Nov. 2, 2021) (2021 WL 5074720).
Social Media and Jurisdiction under FRCP 4(k)(2
On August 27, 2021, the federal Ninth Circuit Court of Appeals ruled in an international trademark dispute where U.S. jurisdiction hinged on Federal Rule of Civil Procedure 4(k)(2). Reversing the trial court, the Ninth Circuit ruled that personal jurisdiction existed over an Australian skin care product company, based in part on that company’s actions on social media. (Ayla, LLC v. Alya Skin Pty. Ltd., No. 20-16214, — F.4th —- (Aug. 27, 2021) (2021 WL 3823624).)
Social media, trademark settlement, breach of contract, and “material” violations
If you entered into a trademark settlement agreement where one party agreed not to use your registered trademark and then that party proceeded to use a very similar term on social media, is that a “violation” or a “material violation” of the agreement? The answer is important because it determines whether you can get summary judgment on your breach of contract claim, according to a federal trial court in Florida. (PayCargo, LLC v. CargoSprint LLC, Case No. 1:19-CV-22995-LOUIS (S.D. Fla. June 17, 2021 (2021 WL 2481867))
Social media apps, CDA § 230, and products liability
On May 4, 2021, the Ninth Circuit reversed the district court’s judgment for Snap, Inc., owner of the mobile application Snapchat, in a case brought by the parents of two teenage boys tragically killed in a car accident. The parents claimed that Snap, Inc. caused the death of their sons through its negligent design of Snapchat. They claimed that that their sons were encouraged to drive at dangerously high speeds by a Snapchat filter which purports to show the user’s real-time speed (the “Speed Filter”). The boys in this case drove at speeds reaching 123 miles per hour and eventually fatally crashed into a tree going approximately 113 miles per hour. Shortly before the accident one of the boys opened Snapchat to use the Speed Filter, believing that posting a video of them traveling over 100 m.p.h could result in rewards within the app. See Lemmon v Snap, Inc. (9th Cir. May 4, 2021). Snap claimed immunity under federal law.
Is social media regulation on the way?
So far, 2021 has seen some social media businesses implementing content takedowns, rolling internal reforms and banning high-profile individuals and applications from using their services. It has caused some tech commentators to question recently whether this could be a defining