Due diligence is a critical part of any acquisition. A company looking to buy an asset (any property a business owns) will typically conduct due diligence prior to acquiring the asset in order to determine whether the asset it wishes to buy has been characterized correctly by the Seller. This process consists of a thorough review of all aspects related to the target asset. While it may seem like a tedious task to complete, due diligence is an important part of the acquisition process because it essentially provides the buyer with a complete evaluation of information relating to the asset so as to protect against any misrepresentations made by the Seller. By engaging in sufficient due diligence, companies can further protect themselves from entering into bad deals.
Due diligence can be completed on the acquisition of any asset, including social media accounts. Unfortunately, it can be difficult to determine the ownership rights of digital assets if a company has not instituted the proper protections for this property. Before acquiring these types of digital assets, purchasers should consider a number points in order to make sure they are not getting swindled.
Here are several aspects to consider when evaluating whether to acquire a target’s social media accounts:
Generally, if you believe there are no issues with the target asset after completing this checklist, it is likely that the seller made accurate representations regarding the asset, and you may be more comfortable in proceeding with the deal. However, if any red flags appear along the way, you may want to take a more cautious approach and ask follow-up questions in order to understand the situation. Nonetheless, businesses should keep in mind that each acquisition is different and there are a number of additional factors that should be considered when entering into this type of agreement. If you need any assistance in performing due diligence and completing your acquisition, please feel free to contact us.
As social media and other digital platforms continue to function as successful ways to connect esports brands to consumers, the value of these digital assets continues to increase. Yet, many esports businesses fail to adequately protect these assets by clearly defining the ownership rights of its social media accounts and digital assets. This ambiguity can lead to problems if a hired party who has created the account or digital assets, decides to leave the company, since there is a strong presumption in favor of granting the original creator ownership rights, absent controlling language.
Ownership of digital assets has become an increasingly trendy issue to litigate in recent years, as businesses and their workers have increasingly filed lawsuits to determine who rightfully owns these assets. Most recently, last week, a Virginia newspaper filed a lawsuit against its former Virginia Tech football reporter to determine ownership over a Twitter account used by the employee while working for the media site. While determining ownership rights to digital assets may seem complex, esports businesses can take preventative measures in a variety of contexts to minimize the likelihood of these situations arising.
This type of dispute often occurs in the context of an employer/employee relationship. When hiring an employee, businesses will first enter into an employment agreement with the new employee. This is the first opportunity businesses have to establish protection for digital assets. These employment contracts should include a provision that clearly states that the business shall own any work product (and its associated intellectual property), or anything created by the employee, resulting from the services provided by the new employee. This language would extend company protection to any property created by an employee in furtherance of their employee duties, including the creation of a social media account by an employee tasked to do so.
Businesses can also limit digital asset ownership issues by providing additional clarity in the business’ employee handbook. In the handbook, a company can (re)state its social media and digital asset policy, thereby eliminating any ownership confusion. For example, a business’ employee handbook can state that any account used by employees who participate in social media activities as employees of the company is property of the company. This would likely include social media accounts dedicated to assisting the business’ customers. An effective social media policy will also specify in its employee handbook that employees cannot keep the account if they leave the company, perhaps even further specifying that the account’s password will not be changed, nor will the employee create a confusingly similar account. Employee handbooks may also include protections relating to associated contacts, follower lists, and connections the employee has gained through the account.
Independent contractor relationships are ripe for social media/digital asset ownership issues to arise. Generally in contractor agreements, companies will not own the work product created by independent contractors unless the agreement specifically includes language effectuating that. Companies often mistakenly believe that they own the rights to all work product created by the contractor simply because the companies are paying for the contractor’s services. This misconception can prove to be costly if the ownership rights are not clearly and correctly defined. Nonetheless, these potential ownership issues can be avoided by including a provision in the contractor agreement that affirms that the contractor agrees to assign all rights to the work product created during the course of his services to the company. This written assignment of ownership will effectively transfer any rights the contractor may have had in his work over to the employer. The specific language used in these provisions is integral to properly determining ownership rights.
Ownership issues relating to digital assets as intellectual property may also arise in the context of partnerships. If two partners in a business decide to create a social media account to help grow their business, and one partner creates the account, regardless of who operates the account, it may be difficult to determine ownership rights unless the partnership agreement explicitly lays out who owns this asset. Partners will want to make sure their agreement explains that any work done, or assets, created for or utilized in furtherance of the company’s business shall be property of the company. By incorporating language that makes this clear, these types of assets will belong to the company and will be subject to distribution, as typical of any other assets, upon dissolution of the partnership.
Ineffectively defining the ownership rights to social media accounts and other digital assets may seem inconsequential in the grand scheme of a multi-million dollar business, but overlooking the inclusion of adequate protections relating to this subject can be extremely costly. Both employers and hired parties have initiated lawsuits containing claims ranging from trade secret protection of accounts/contacts to common law theories of misappropriation and conversion against employees who have taken accounts/contacts or passwords upon leaving the company. While it may be difficult to definitively prevent all potential litigation involving digital assets, a clear definition of ownership rights will help all parties understand who owns what and hopefully preclude any problems from arising. No business wants to lose their successful social media account due to its own inability to secure said assets through its contracts and handbooks.
Quiles Law is an esports and sports law firm based in New York City.
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Attorney Advertising. The information presented in this site should not be construed to be formal legal advice nor is it intended to form any attorney/client relationship. Our attorneys, collectively, are licensed to practice law in the States of New York, New Jersey, and Pennsylvania. Copyright Roger R. Quiles, Esq., 2020. All rights reserved.