Social Networking - Was that tweet a solicitation?

In just a few short years, social media sites such as LinkedIn, Facebook and Twitter have become an accepted and some would say essential tool of business communication. Employers seeking to preserve the confidentiality of their customer lists have struggled to keep pace in this rapidly changing environment. This issue has also been the subject of many recent articles and our firm was asked to comment on it earlier this month for an article appearing in the Wall Street Journal. News for Brokers, Wealth Managers and Their Clients. Wall Street Journal (November 4, 2011).

Like employees in many other industries, registered representatives use LinkedIn to maintain contact with other professionals, referral sources and clients. While the client’s LinkedIn profile is public, the firm has a responsibility to monitor communications between registered representatives and clients and will often claim that the client relationship was developed from firm resources. Problems arise when the registered representative leaves the firm to join a competitor, but retains access to his LinkedIn profile and contacts.

When the representative updates his LinkedIn profile to identify the new employer, LinkedIn will automatically send a message to every one of his contacts, which could include hundreds of clients still being serviced by the representative's former firm. Is this message a solicitation or merely an announcement? Is the LinkedIn contact list a trade secret? Can the employer assert ownership or control over the LinkedIn profile with contractual language that prevents post-employment use by the representative? Our firm recently handled a FINRA arbitration case in which one of the claims arose from LinkedIn messages such as these.

Brokerage firms, registered representatives, regulators and courts across the country continue to struggle with this issue. One thing is clear. The exponential growth of the Internet is continually eroding the confidentiality of information formerly protected as trade secrets. For example, in Sasqua Group, Inc. v Courtnery, Case No. 09-528 (S.D.N.Y. Sept. 7, 2010), an executive recruiting firm sought injunctive relief to prevent a former employee from using a contact database it claimed as a trade secret. At the preliminary injunction hearing, the former employee demonstrated that the same information could be ascertained from LinkedIn, Bloomberg, Google and other resources. Relying heavily on this testimony, the Court concluded that the information in the database was not a protectable trade secret.

This case would probably have had a very different outcome just ten years ago, but the proliferation of information available on the Internet through LinkedIn and other social networking sites undermined an essential element of the employer’s case – that the information was not generally known to or ascertainable by those outside the company. Employers seeking to preserve the secrecy of customer lists in this environment will need to take additional steps to protect the confidentiality of their information from disclosure through social networking programs.

Author; Dennis J. Concilla

About the Author

Dennis J. Concilla

Dennis J. Concilla

"It's important that I know my client's business as well as they do."

Dennis Concilla practices securities law at Carlile Patchen & Murphy LLP, where he heads the firm's Securities Litigation and Regulation Practice Group. His focus is in the area of securities industry employment arbitration and regulation. Dennis joined CPM in April, 1985. He has been listed in Best Lawyers in America® for several years and The Securities Law Practice Group recently received a top tier ranking from Best Lawyers in America®.

Dennis served as Legal Counsel to the Ohio Senate Majority, was District Director of the 12th Ohio Congressional District, and is a former Assistant Attorney General for Ohio. Dennis served as an arbitrator for the National Association of Securities Dealers and has appeared before FINRA, its predecessors, the NASD and New York Stock Exchange, the Commodities and Futures Trading Commission, the Securities and Exchange Commission, and the Ohio Division of Securities.

Dennis has spoken at NASD sponsored arbitrator training seminars throughout the Eastern United States and has been a presenter at the Ohio Division of Securities annual conference. Dennis has been featured as a securities litigation instructor for Continuing Legal Education seminars sponsored by the Columbus, Cleveland and Ohio State Bar Associations and has been a speaker at CLE seminars on Restrictive Covenants & Ohio Administrative proceedings.

Dennis is a member of the Securities Industry and Financial Markets Association, Compliance and Law Division, and the Ohio State, and Columbus Bar Associations.