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June 2013 Edition

Know-how corner: Revised digital advertising guidelines; social media and securities law compliance; proposed changes to Delaware law

Revised digital advertising guidelines

Companies that advertise online, including on mobile devices and social media sites, should ensure that their disclosure practices comply with the FTC's newly revised guidance document, .com Disclosures: How to Make Effective Disclosures in Digital Advertising.

The revised guide:

  • Affirms that laws against unfair or deceptive acts or practices apply to online advertising, marketing and sales.
  • Addresses new disclosure issues for space-constrained screens and social media platforms.

To avoid liability for deceptive marketing, advertisers must ensure that all express and implied claims in their ads are truthful and substantiated. If information must be disclosed to make an ad claim accurate, the FTC requires the disclosure to be "clear and conspicuous." While there is no standard test for determining compliance with this requirement, the revised guide provides several factors for advertisers to consider, including:

  • Whether a disclosure is unavoidable.
  • The range of devices on which an ad will be viewed.

The revised guide also offers practical tips and illustrations for compliance. For example, advertisers should:

  • Place disclosures as close as possible to the triggering claim.
  • Avoid ads that require a consumer to scroll to find the disclosure.
  • Avoid the use of pop-up disclosures.
  • Prominently display disclosures.
  • Evaluate the size, color and graphic treatment of the disclosure in relation to other parts of the webpage.

The FTC notes that because of space constraints it may be impossible to make clear and conspicuous disclosures on certain mobile platforms. The revised guide states that if disclosure is not possible on a certain platform, that platform should not be used to disseminate ads that require disclosures. For more information on online advertising regulation and compliance, see Practice Note, Online Advertising and Marketing.

Social media and securities law compliance

While public companies and their counsel may welcome recent SEC guidance on corporate social media communications under Regulation FD, they should not forget other important securities law compliance risks implicated by social media.

The SEC recently issued a report on its investigation of Netflix, Inc. and its CEO for a potential violation of Regulation FD after the CEO posted an important performance metric on his personal Facebook page. The report clarified that:

  • Social media communications require careful Regulation FD analysis comparable to communications through more traditional channels.
  • All of the principles outlined in the SEC's 2008 Commission Guidance on the Use of Company Web Sites (2008 Guidance) apply equally to corporate social media communications. The report stressed in particular that companies should give investors advance notice of the social media channels they plan to use.

Despite this tentative green light under Regulation FD, companies should remain vigilant about other important compliance risks. The challenge of providing appropriate context within the space limitations of Twitter and other forums and the casual, spontaneous nature of social media lead to risks of:

  • Rule 10b-5 anti-fraud liability for material misstatements or omissions in:

    • statements of the company and its representatives; and
    • under the 2008 Guidance, third-party statements attributable to the company or its representatives when they link to, "like," retweet or otherwise endorse those statements.
  • Securities Act offering violations, including the risk that a social media communication could constitute:

    • "gun-jumping" in violation of publicity restrictions before or during a registered offering; or
    • general solicitation or advertising prohibited in certain unregistered offerings.
    • Failure to qualify for the forward-looking statement safe harbor where a communication does not incorporate meaningful cautionary statements.
    • Violations of Regulation G, which requires issuers disclosing non-GAAP financial measures to include comparable GAAP measures and reconciliations.
    • Inadvertent triggering of supplemental proxy filing requirements if a social media communication is characterized as a proxy solicitation.
    • Violations of NYSE or NASDAQ requirements governing the disclosure of material information.

For more information on the new SEC guidance on corporate social media, see Article, Social Media and Regulation FD

For sample corporate policies, with explanatory notes and drafting tips, see Standard Documents, Social Media Guidelines (Public Company Long Form) and Social Media Guidelines (Public Company Short Form)

Proposed changes to Delaware law

The Delaware State Bar Association's Section of Corporation Law will meet to consider several significant proposed amendments to the Delaware General Corporation Law (DGCL) and the Delaware Limited Liability Company Act (LLC Act). The amendments to the DGCL would streamline the process for acquirers conducting mergers through a tender offer. If approved by the Delaware legislature, most of the amendments would take effect on August 1, 2013.

Among other changes, the proposed amendments address the following:

  • No shareholder approval required after tender offer. New DGCL § 251(h) would eliminate the requirement that stockholders of a public corporation vote to approve a merger if, subject to certain conditions, they have tendered a statutorily defined minimum number of shares into the tender or exchange offer of an arms' length third-party acquirer. This change would eliminate the need for top-up options in qualifying transactions, as the acquirer would no longer need to acquire 90% of the target company's stock for a squeeze-out.
  • Ratification of defective corporate acts and stock. New DGCL § 204 would provide a safe harbor procedure for ratifying corporate acts or transactions and stock issuances that were not properly authorized. New DGCL § 205 would confer jurisdiction on the Delaware Court of Chancery to remedy defective corporate acts.
  • Default fiduciary duties for managers of LLCs. LLC Act § 18-1104 would be amended to confirm that managers of LLCs owe fiduciary duties to LLC members by default. This amendment, which would end an ongoing debate among the Delaware courts, would continue to allow LLC members to draft LLC agreements that expand, restrict or eliminate those fiduciary duties.

For more detailed information on the amendments, including other proposed changes to the DGCL, see Legal Update, Proposed Changes to Delaware Law: No More Top-up Options and Default Fiduciary Duties for LLC Managers.

This look at the major issues on the horizon for corporate counsel comes from Practical Law – an online legal know-how service. View all the looming issues now – compliments of Practical Law The Journal, which covers the latest transactional and compliance topics that impact your practice. To gain access to more related know-how resources, please visit us.practicallaw.com.

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