Clifford Chance

A strong social media presence can add a great deal of value to a brand and is now a key marketing strategy for many businesses. For some companies, their social media presence has even become one of their most valuable assets. However, it can also be one of the most overlooked assets, particularly on the sale of a business.

The main issues to consider fall into two broad categories. First, can the seller of a business actually sell - and can the buyer actually buy - a social media account? Whilst the transfer of domain names, trade marks, and other IP rights is relatively straight forward, social media accounts are potentially more problematic. The registration of a social media account is subject to the relevant social networking platform's terms of service, most of which are subject to change at the platform's discretion and expressly forbid the assignment of accounts on their platforms.

Second, can the seller sell its ownership or transfer its right to use the intellectual property rights vested in any content posted on these accounts, including images, videos, graphics, text and more? It may be that a business does not actually own all the content that is posted on its channels and therefore this is also a question of whether licences can be transferred from other creators.

Can you "sell" a social media account?

The terms of service of most major social media networks prohibit the assignment or sale of any accounts hosted on their networks. This would seem to block any businesses attempting to transfer social media accounts lest they breach the contractual provisions of use. Should a user do anything to breach the terms, the social networks reserve the right to suspend or even terminate the account, which could result in a huge loss of brand value for a company.

It is worth noting, however, that these terms are predominantly aimed at individual users and at preventing profiteering. Whilst typically there are no specific provisions governing how a social media account could be transferred as part of a wider business acquisition, platforms are on the whole business-friendly. There is a divergence between the contractual terms each user (whether individual or business) is bound by and what the social networks will allow in practice. To date, there do not seem to have been any instances where the social media networks have terminated or blocked a business' access to a social media account after a business sale.

That said, it is still prudent for businesses to consider the implications of the terms of service and what these might mean if the platform does object. If a seller is unable to transfer the social media accounts, would a buyer still wish to proceed with the acquisition? What if the platform raises an objection after the fact, once the deal has been completed? For businesses with particularly strong online branding, the social media accounts may be the primary way of communicating with customers and the inability to gain access to them may be hugely problematic. It may be very costly and time consuming to rebuild a following on a new account. Simply having the seller delete the account and then having the buyer re-register it might – if a third party does not intervene – act to transfer control of the account handle itself, but it is likely to cause a loss of most of the account's value, since the deletion will also erase all the interactions with the account by other users.

It is important to note that the inability to transfer the account as part of a business sale is not just an issue for the buyer. A seller might expose itself to a claim from the buyer if it purports to sell a social media account which is then deleted because the sale breached the platform's terms of use. In the worst-case scenario, a seller could be left without a completed transaction and a depleted social media presence. If the social media presence is a key asset of the business, that could have a significant effect on the value of the business and the possibility of a future sale. All of these risks should be properly addressed through the sale documentation where a social media account is a key asset.

What about content?

Social networks rely on third party content. Assuming a company has created and posted solely its own content then it would retain all rights in this and the content could be transferred by way of contract in much the same way as other IP rights. However, business accounts typically host a mix of content that has been created in-house, by contracted photographers, by influencers or other collaborators, as well as by other users on the platform. Unpicking which content is owned by a business – and can therefore be assigned to a buyer – and which is licensed to the business can be a significant task.

Purporting to sell all the content on a social media account when the account holder may not have full title guarantee to all the content creates a number of intellectual property issues. A third-party content creator may object to the ongoing use of its content by the buyer. This could lead to a renegotiation of terms with the content creator, including possible additional payments, or even infringement proceedings in the most extreme of circumstances.

There are a number of ways to mitigate the risks associated with content. First is to ensure that any third-party content is created under a written agreement. Even if the content creator is unwilling to assign its rights in the content to the business, the business should seek a broad licence which at a minimum permits a transfer of the licence on a business sale. The use of standard terms will significantly simplify any due diligence exercise on a future sale.

When a sale is contemplated, due diligence could be carried out across all the accounts to establish what is owned by the seller and what is licensed. Posting to social media is usually a daily (if not more frequent) activity for brands and content might be created on an ad hoc or informal basis, which is likely to make due diligence on years of content at least incredibly time consuming and possibly a disproportionate exercise. If this exercise confirms content is licensed, then the seller must consider whether it is necessary or practical to contact the relevant right holders to seek consent to the transfer. Again, this may be disproportionate and impractical and therefore it may be necessary to identify and focus on key content.

Another alternative is to delete content in relation to which the seller cannot confirm ownership or usage rights. This reduces the infringement risk, but taking down significant amounts of content could have a knock-on effect on the value of the business' social media presence. In practice, the parties may prefer instead to deal with the risk allocation in case it transpires that content is licensed and the licensee objects (and has the right to object to) the ongoing use of the content after the sale. Parties operating in the social media sphere should be mindful that even if a third party does not have a legal right to object to ongoing use of its content, the reputational damage caused by a public dispute could be far more harmful than removing the content in the first place.

Conclusion

In light of the above, businesses should consider how they can give themselves more comfort in relation to any social media account transfers to mitigate the potential risks. The right approach will depend on the platform(s) in question, the importance of the social media accounts to the business sale overall, the importance of any specific content available through the account, and the likely costs of starting a social media presence for the business from scratch.

As more businesses allocate a growing proportion of their marketing budgets to social media, it is clear that it is important to start thinking about how the value of social media assets can be properly maintained and realised. The nature of social media accounts gives rise to significant legal complexity on their transfer. Whilst it may not be appropriate on every business sale, if social media is a key marketing asset then these issues must be properly addressed to avoid a loss of value.