Many businesses derive significant revenue through their social media accounts, but buying those accounts from another business is neither legally nor practically straightforward.
Your business is considering purchasing a smaller company, Target Co, to complement its existing business divisions. Although Target Co has little in the form of tangible assets, it has developed particularly strong brand awareness in certain market segments via a social media focussed marketing strategy. Target Co's revenue stream now relies heavily on its followers, fans, subscribers and other consumers who connect with it and its brands through social media.
Naturally, as part of the purchase, your business will acquire all relevant intellectual property rights of Target Co, including its registered and unregistered trade marks. Any domain names can also be easily transferred. However, what about Target Co's social media accounts? Without those, the revenue stream that makes Target Co an attractive proposition might start to dwindle or, worse still, evaporate altogether.
In this article, we examine the difficulties that the current terms of service of several social media providers ("SMPs") create as a result of the restrictions they place on the transfer of accounts. We then consider whether there are any strategies which can be implemented to overcome those difficulties and whether the risks of implementing them are worthwhile.
The major obstacle: Major SMPs' terms of service
The terms of service of most major SMPs forbid the unauthorised transfer of accounts. Some, such as Facebook, expressly allow transfers if written consent is obtained. However, anecdotal evidence and experience suggest that there is generally no formalised procedure to obtain SMPs' consent to a transfer, no requirement for a SMP to act reasonably in response, and little (or, in many cases, no) prospect that the SMP will respond at all.
This means that transferring ownership or (at the very least) control of Target Co's social media accounts will require your business to consider alternative strategies. Unfortunately, each of those strategies carries certain risks, both legal and practical.
Option 1: purchase the shares in Target Co, rather than its assets
You could use a share purchase, rather than an asset purchase, as the transaction method for the purpose of gaining control of Target Co's assets.
Pro: This would avoid many of the difficulties noted above.
Con: It will often be unattractive where (for example) Target Co is heavily geared, has a restrictive or complicated share structure, has assets that your business has no interest in acquiring or would give rise to adverse tax consequences. Where an asset purchase is necessary, other methods of obtaining control of Target Co's social media accounts will need to be pursued.
Option 2: Require Target Co to provide permanent and exclusive access to all social media accounts
You could require Target Co, as part of the purchase, to provide the current password to its social media accounts and then agree not to access those accounts in future. Your business could then change the password, once it obtains access, thereby preventing Target Co from accessing the accounts in future.
Pro: You would have access to the accounts.
Cons: It is likely to breach the terms of service of the relevant SMPs by Target Co and/or your business as an unauthorised password disclosure and an assignment to a third party without the SMPs' consent. The SMP may shut down the account at some time in the future (particularly if your business' relationship with Target Co sours, following which Target Co notifies the SMP of the unauthorised transfer).
While your business (as the owner of Target Co's trade marks) could then seek to invoke the trade mark policy of the relevant SMP in order to have any account bearing Target Co's trade marks transferred to it, this would obviously rely upon the SMP then agreeing to transfer the account under its trade mark resolution policy (which would not be guaranteed).
Option 3: Appoint Target Co as your agent to operate the social media accounts in perpetuity
Pro: Unlike option 2, this would not be likely to infringe the SMPs' terms of service because it would not involve an unauthorised transfer, assignment of ownership or password disclosure.
Con: Like option 1, option 2 relies on your business maintaining a positive relationship with Target Co. If the relationship sours, the accounts will be at risk.
Option 4: Require Target Co to deactivate its social media accounts and agree not to open any new account under certain names, then establish new accounts with the same names
Pro: This would not be likely to breach the SMPs' terms of service and would not (after the old accounts are deactivated) require the co-operation of Target Co.
Cons: Not all SMPs immediately make the name of deactivated accounts available for other users following deactivation. You might have to suffer through an unavoidable time lag or, worse, cyber-squatters might pick up the name before your business does.
More importantly, it is not generally possible to transfer the followers, fans, subscribers and the like of the deactivated accounts to the new accounts. The slate will be wiped clean, thus destroying what made Target Co's social media accounts attractive in the first place.
Lessons for businesses who want to transfer social media accounts
Businesses need to be aware that when it comes to social media, the SMPs hold almost all of the cards, and any attempt to purchase accounts held by another entity using a simple asset purchase agreement will often be ineffective.
While there are ways to (at least temporarily) transfer control of social media accounts between entities, the legal and practical problems which arise cannot be ignored. Accordingly, great care needs to be taken when structuring transactions which include the transfer of ownership or control of social media accounts.
A version of this article was first published in the July 2013 edition of the Internet Law Bulletin: (2013) 16(3) INTLB 58
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.