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Social Media & Games: 2013 Year in Review

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2013 was an incredibly active year for social media legal issues. Below are selected highlights on some of the more interesting legal issues that impacted social media, along with links to reference material relating to the topics.

1.
Virtual Currency/Bitcoin

FinCEN Virtual Currency Guidance and Enforcements - FinCEN published legal guidance  on virtual currency making clear that existing regulations regarding money transmitter and anti-money laundering laws apply to certain virtual currency activities. Shortly after issuance of the guidelines, a wave of enforcements shut down non-complying entities. [BLOG]

Congressional Hearings on Virtual Currency - Congressional hearings were surprisingly more friendly and receptive of Bitcoin and other virtual currencies.

2.
Privacy - Guidance and Enforcements

COPPA - The FTC issued new guidance and FAQs for children's online protection due to evolving technology and changes in the way children use and access the Internet, mobile devices and social media.

CA Privacy Law - California passed new privacy laws.

3.
Intellectual Property/Patents

Patents - The number of social media patent filings continued to increase. The America Invents Act (AIA) fully kicked in, providing a greater ability to challenge patents believed to be invalid without going through district court litigation. The Fast Track process to get patents issued more rapidly (often in less than a year) continued.

Ownership of Social Media Accounts and Followers - Despite a number of cases (including ones involving LinkedIn and Twitter) relating to ownership of social media accounts, the law remained murky and fact specific. This uncertainty can be avoided by proper attention to social media policies before issues arise.

4.
Employment Law and Social Media

National Labor Relations Board (NLRB) - The NLRB continued to issue surprising guidance and decisions on social media usage. In many cases, some or all provisions of employers' policies governing the use of social media by employees were found to be unlawful. [BLOG] The NLRB affirmed that workers have the right to discuss work conditions freely without fear of retribution, whether the discussion takes place in the office or on Facebook. But later in the year it actually found some uses of social media for employment (firing) decisions to be okay.

Employer Access to Social Media User Names and Passwords - By year end, 36 states had passed or initiated legislation prohibiting employers from requesting personal social media account information or passwords in connection with employment decisions.

National Conference of State Legislatures Report - Some states have similar legislation to protect students in public colleges and universities.

5.
Online Gaming

First mover states forged forward with online gambling.

·         Nevada - Legalized online poker and granted its first licenses for interactive gaming.

·         New Jersey - In February, passed legislation (signed into law by Governor Chris Christie) allowing on-line wagering. Subject to certain limitations, licensed operators are permitted to offer online versions of a wide variety of games currently permitted in Atlantic City casinos (e.g., roulette, craps, black jack, and slots).

·         Delaware - On October 31, launched what Delaware officials call a "full suite" of internet gambling.

Zynga - In September, Zynga withdrew its bid for a gambling license in Nevada

Federal Gambling Legislation - The prospects for a federal law for online gambling remain elusive.

6.
Mobile Health Applications

FDA Guidance - The Food and Drug Administration (FDA) issued guidance that focused on applications that present a greater risk to patients if they do not work as intended or that cause smartphones or other mobile platforms to impact the functionality or performance of traditional medical devices.

FTC Guidance - The FTC issued guidance in April focusing on truthful advertising and privacy.

7.
Gamblification/Sweepstakes

Florida prohibited gaming promotions in a cause-related marketing campaign (where purchase of a good or service benefits a charitable cause).

Internet Sweepstakes Café Conviction in Florida - Lawyer Kelly Mathis was convicted on 103 of 104 counts related to illegal gambling based on his role in Internet Sweepstakes Cafés in Florida. He faces up to 30 years in prison. CA, OH, SC and other states moved quickly to shut down similar operations.

8.
Equity-based crowd funding legalized in the United States

SEC Rules - In October, the SEC voted unanimously to propose rules under the JOBS Act to loosen the rules and permit companies to offer and sell securities through equity crowd funding.

Note: Equity crowd funding is much like crowd funding, which has been popularized in the United States through sites such as Kickstarter and Indiegogo. The difference is that instead of individuals supporting campaigns through donations, numerous investors are purchasing small stakes in startups or small businesses.

Critics Emerge - Critics of equity crowd funding worry that the industry will be rife with Ponzi schemes or that having too many investors will hurt startups' prospects for future funding.

Pillsbury originally discussed this in a January 2012 client alert and March 2012 Blog Post.

9.
Endorsements

FTC Enforcements on Fake Endorsements - In February, the FTC permanently stopped a fake news website operator that allegedly deceived consumers about acai berry weight loss products. The settlements will yield more than $1.6 million and conclude a sweep against online affiliate marketers and networks. The sites falsely claimed endorsements from ABC, Fox News, CBS, CNN, USA Today and Consumer Reports.

Many companies' understanding of and compliance with the FTC Endorsement Guidelines remains lacking, yet enforcements continue.

10.
Wearable Computing Lawsuit

Google Glass Liability? - In what may be a foreboding development, a California woman received a traffic ticket for wearing Google Glass while driving. Many states have broad distracted-driving laws or bans on certain monitors that may apply to Google Glass and similar wearable computing devices.

Social Media Is The Hot Recruitment Tool

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The Sacramento Bee in an article titled Job Front: Social media are growing recruitment tools reported that "[e]mployers in greater numbers are relying on social media to recruit new talent," according to Jobvite's 2013 Social Recruiting Survey.  The Sacramento Bee noted that the survey "showed about 94 percent of employers either use or plan to use social media to recruit workers."  It also noted that "Pollsters found that social-network giants Facebook, LinkedIn and Twitter remain the most popular tools to recruit talent, but that employers are also using YouTube, Instagram, blogs and other social media to find new employees.  Still, LinkedIn leads the way among those hiring officers polled." 

Additional Resource:  The Sacramento Bee; Jobvite

"Solicitation" In the Era of Social Media Remains Unsettled

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Last month, in KNF&T v. Muller (October 2013), the Massachusetts Superior Court found that a LinkedIn update regarding an employee's new job was not a solicitation of business in violation of her non-competition agreement, which also prohibited solicitation.  In that case, the court denied the former employer's request for a preliminary injunction finding that the former employee's LinkedIn update notifying more than 500 contacts about her new job, including contacts she established during her nearly 8 years with her former employer, was not a an impermissible solicitation.  This was despite the fact that the First Circuit recently held in Corporate Technologies, Inc. v. Harnett (August 2013), that an email blast to former clients announcing an employee's new position constituted solicitation in violation of an employee's non-solicitation agreement.

Notwithstanding the rapidly increasing use of social media, very few courts have addressed the issue of when the use of social media violates a non-solicitation provision.  The case law that has addressed this issue over the past few years focuses on whether the former employee has proactively used social media to encourage former colleagues to come to work for, or encourage former clients to give business to, his or her new employer. 

 For example, in Enhanced Network Solutions Group, Inc. v. Hypersonic Technologies Corp. (June 2011), the Indiana Court of Appeals found that posting an employment opportunity on LinkedIn did not constitute prohibited solicitation.  In that case, two software companies entered into a subcontracting agreement in which ENS, an advanced software engineering company, and Hypersonic, a software modification company, agreed that ENS would acquire certain services from Hypersonic to serve ENS's own clients.  The companies agreed that they would "refrain from soliciting or inducing, or attempting to solicit or induce, any employee of the other party."  During their contractual relationship, Hypersonic posted an open position for an outside sales representative on LinkedIn.  A field representative for ENS saw the posting and was interested.  He reached out to and met with Hypersonic executives and was eventually offered employment, which he accepted.  ENS brought suit against Hypersonic for breach of their agreement.

In determining that there was no unlawful solicitation, the Court of Appeals focused on the fact that the non-solicitation provision lacked a definition of the terms "solicit" and "induce."  Based on the commonly used definitions of these words, the court found that there was no violation because the employee had reached out to Hypersonic.  The court further noted that should ENS have wanted to eliminate the possibility of such conduct, it should have provided a definition of "solicit" in future agreements that clearly specified the kind of activity it wanted to prohibit.

In Invidia, LLC v. DiFonzo (October 2012), a popular hairdresser left her position with a salon to work for a competitor.  The new salon posted on her Facebook page that she was coming to work for it, and the hairdresser became Facebook friends with eight of her former clients.  The Superior Court of Massachusetts (October 2012) held that neither of these actions were solicitations in violation of the hairdresser's agreement with her former salon and denied a motion for preliminary injunction because there was no evidence that she had actually encouraged her former clients to come to her new salon.

Similarly, relying on Enhanced Network Solutions Group and Invidia, the United States District Court for the Eastern District of Oklahoma held that a former employee's public posts on his personal Facebook page did not constitute solicitation of his former co-workers under the terms of his non-solicitation agreement with his former employer in Pre-Paid Legal Services, Inc. v. Cahill (February 2013).  The court found that the former employer did not present evidence demonstrating that the former employee's Facebook posts resulted in the departure of any of his former co-workers, or any evidence showing that the former employee was targeting his former co-workers by posting directly on their walls or through private messages.  The former employee's posts only touted his professional satisfaction with his new employer and their products.

The court further noted that invitations sent to former co-workers to join Twitter were not solicitations under the agreement because the invitations did not request the co-workers to "follow" the former employee, they did not contain any information about the new employer, and they were sent by Twitter, not targeted email blasts by the former employee.

Employers should be mindful of the implications of social media for the protection of their trade secrets and good will and may consider directly addressing the use of social media in their non-competition and non-solicitation agreements with their employees.  And employees should not mistake this case law for a free license to promote their new employment on social media, as these cases are limited to their own discrete set of facts.

Some Firings Based on Social Media Use May Be Okay

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In early November, an administrative law judge of the National Labor Relations Board dismissed a complaint filed against an employer, finding that the employer did not violate the National Labor Relations Act by withdrawing rehire offers from two employees' based on their Facebook conversation.

The two employees worked for a non-profit corporation's teen center.  Shortly after the employees were issued rehire letters, they had a Facebook conversation regarding their work at the teen center.  The conversation included a large amount of profanity as well as statements that the employees would not ask permission to engage in certain activities; would do whatever they wanted with the center's funds; and would generally "raise hell."  Another employee saw the conversation and sent screenshots to the director of the teen center.  Letters rescinding the rehire offers were sent to the employees, citing concerns that they would not follow directions and could endanger the children at the teen center.

As in many recent cases, the administrative law judge found that the employees were engaged in "concerted activity" when expressing disagreement with management's running of the teen center.  The judge noted that the Facebook conversation included discussion of (1) how the employees were treated, (2) the employer's failure to respond to certain employee concerns, and (3) the one employee's demotion. 

However, not every instance of concerted activity is protected.  The judge found that the employer could reasonably and lawfully conclude that the employees' actions were not protected.  The judge noted the employer's arguments (1) that its funding from the government and donors could be impacted by the comments, and (2) that the safety of youth served by the teen center could be jeopardized. 

While not every social media-related firing may be unlawful, employers should still be aware of the NLRB's crackdown on social media policies. 

Florida Ethics Committee Concerned About Judges on Social Media

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On July 30, 2013, the Florida Judicial Ethics Committee issued an opinion stating that a judge running for re-election may create a Twitter account for campaign purposes, but warned of potential pitfalls surrounding social media.

The opinion resulted from an inquiry submitted by an anonymous judge who plans to use a Twitter account to tweet about judicial philosophy, campaign slogans, and the candidate's background. While the opinion is permissive, it also explains that many of Twitter's features "could prove problematic" as a judge's campaign tool:

  • Blocking specific followers;
  • Re-tweeting and marking tweets as favorites;
  • Creating lists of users and subscribing to lists created by other users;
  • And direct messaging that could result in ex parte communications.

To avoid these problematic aspects of Twitter, the Committee suggests that the "most sensible way" to use a Twitter account would be for the judge's campaign manager to create and maintain the account.

The Committee's concerns reinforce a 2009 opinion regarding the use of social networking sites such as Facebook and LinkedIn. In that opinion, the Committee stated that judges may post comments and other material on their social networking sites, but that judges are prohibited from becoming "friends" with lawyers who may appear before them.

As discussed in a previous post on this blog, opinions such as these represent the more restrictive views of social media. Earlier this year, the American Bar Association issued an opinion giving its stamp of approval to these kinds of online relationships.

Technology and Entertainment Convergence 2013: Hot Business and Legal Issues in "Technotainment"

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Cydney Tune will provide the Program Overview for PLI's Technology and Entertainment Convergence 2013: Hot Business and Legal Issues in "Technotainment" on Wednesday, September 18, 2013 at 9:00am. Ms. Tune will also co-present during the "Going Mobile: Key Issues in Developing and Distributing Mobile Apps" session at 11:30am.

James Gatto will present during the "Know When to Hold 'Em" session, which will focus on legal issues with social media-based sweepstakes, prediction markets and other forms of non-real money gaming, at 2:45pm. 

This year's program includes today's major legal and business issues in the convergence of entertainment and technology. The program brings together a faculty of experienced in-house lawyers, law firm attorneys and senior business executives on the cutting edge of this burgeoning practice.

The expert faculty will address recent litigation and key cases involving convergence issues, such as the myriad of issues raised by new platforms and new technologies as well as the resulting evolution of entertainment content; recent decisions on digital television, right of publicity, and contributory copyright liability; issues in connection with social media and apps, including privacy issues and the new COPPA rules; and advertising and promotion issues and strategies.

The discussions will also focus on transitions in the entertainment industries, such as TV, film, and games, and the related issues and strategies. Be sure that you are on top of all of the developments and burning legal issues at the intersection of technology and entertainment! You will learn what you need to know to maintain your practice edge by attending this one-day "Technotainment" program.

What you will learn:

  • Convergence trends and relevant technology developments
  • The evolving entertainment industries, including TV, film, and games
  • Trends in litigation and recent convergence cases
  • Legal issues in social media and apps, including privacy and best practices
  • The complex web of agreements needed to develop content for, and to move content to, new platforms
  • The new COPPA rules and how to implement them
  • Advertising and promotions in new media

This event will also be webcast on September 18, 2013 at 9:00am.

 

SPEAKERS
James Gatto
, Leader, Social Media, Entertainment & Technology, Pillsbury
Cydney Tune, Leader, Copyrights practice section and Media & Entertainment, Pillsbury

 

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Around the Virtual World: July 22-26, 2013

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 A weekly wrap up of interesting news about virtual worlds, virtual goods and other social media.

  

 

 

Surprise: Facebook Is The Tech Company That Reports The Blowout Quarter
The social network surprised on the massive upside. Its mobile business is maturing at an even quicker clip than some aggressive estimates.

SEC Says Texas Man Operated Bitcoin Ponzi Scheme
Regulators have cracked down on an alleged Ponzi scheme involving the virtual currency bitcoin as they issue a more general warning about the dangers of such scams for investors.
 

Upcoming Event: How to Comply With Social Media Regulations While Building Deeper Customer Relationships
In this webcast, IBM and Integritie will explore the opportunities that social media channels now give all organisations to build deeper relationships with their customers and how their solution SMC4 meets the strict compliance regulations set by the FCA, FINRA, SEC and NASD. Using social media is something that worries many organizations across all industries, but particularly concerns Financial Services and highlights the communication risks that could potentially occur thus leading to brand and reputation damage, or worse.

 

To Friend, or Not to Friend: That is the (Judge's) Question

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On May 28, 2013, the New York Advisory Committee on Judicial Ethics issued an opinion stating "that the mere status of being a 'Facebook friend,' without more, is an insufficient basis to require recusal." (Emphasis in original). The sole act of friending an individual on Facebook does not create an appearance of impropriety, nor does it allow the questioning of a judge's impartiality.

The unknown justice inquired if recusal is necessary in a criminal matter in which he or she is Facebook friends with the parents or guardians of certain minors allegedly affected by the defendant's conduct. The justice indicated that the parents are mere acquaintances and that he or she can be fair and impartial.

The Committee cited previous opinions finding that there is nothing inherently inappropriate about a judge making use of a social network. Because interpersonal relationships are unique and fact-dependent, judges must ultimately determine the nature of their relationships.

Various judicial advisory committees have weighed in on judges' use of social media, with each reaching slightly different results.

In 2011, the Oklahoma Judicial Ethics Advisory Panel issued one of the most restrictive opinions, categorically prohibiting social media "friendships" between judges and court staff, law enforcement officers, social workers, attorneys, and others who may appear in the judge's court.

Several months ago, an opinion by the American Bar Association Standing Committee on Ethics and Professional Responsibility provided judges with a great deal of latitude in their online personas. While judges should disclose information believed to be reasonably relevant to a possible motion for disqualification, the mere fact than an online relationship exists is not automatically grounds for recusal. For example, a judge might disclose a social media connection with a party, lawyer, or witness, but state "that the judge believes the connection has not resulted in a relationshop requiring disqualification." Judges must take care, however, not to publicly endorse candidates for public office by "liking" online content.

For more information, see:

Register Now for the Video Games and Digital Media Conference

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Please join us at the Video Games and Digital Media Conference on June 10. Pillsbury attorney Cydney Tune is co-chairing this upcoming conference hosted by the American Bar Association Forum on the Entertainment & Sports Industries. She is also speaking on the topic of "Data Privacy, PII, and Online TOU/Privacy Policies." Jim Gatto, leader of Pillsbury's top-ranked Social Media & Games practice, will be speaking on the topic of "Gamblification! Interaction Between Social Games and Online Gambling."

REGISTER NOW!

Safe Tweeting: SEC Provides Guidance on Social Media and Regulation FD Compliance

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The SEC has provided guidance to publicly reporting companies on how to use popular social networking sites, such as Facebook and Twitter, consistent with federal securities laws. For more information, please read Safe Tweeting: SEC Provides Guidance on Social Media and Regulation FD Compliance.

Why You Need a Social Media Audit Now

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Most companies have employment policies, various website compliance policies and other audit and compliance practices to mitigate risk. Many companies have not yet integrated social media into those policies. Of those that have made some attempt to do so, most have ineffectively or incompletely done so. In fact, a Wall Street Journal report indicates that in a recent Protiviti survey of internal audit professionals, more than half do not assess social media risk and of the ones that do 80% admit to less than fully effective capabilities.

In a climate where regualtory actions are increasing, you can not read the daily tech/legal news without seeing another enforcement action for social media violations. Record fines are being levied. Dont be the next target. There is no time like now to mitigate your risk.

We have previously written about some of the reasons that companies need to conduct legal audits of social media risks and develop effective policies to do so. Pillsbury's Social Media team has a cost-effective approach to doing so. 

To see our recent presentation on Social Media Audits please click here http://www.youtube.com/watch?&autoplay=1&v=_Uts2BT542M#t=2489s.

Questions? Contact Us.

SEC Provides Guidance on Investment Company Social Media Filing Obligations

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On March 15, the Securities and Exchange Commission (SEC) issued the first in a new series of guidance releases aimed at addressing emerging legal issues.  In that edition of "IM Guidance Update", the SEC focused on clarifying filing and disclosure requirements associated with investment companies' use of social media, identifying several types of electronic communications and materials on investment companies' websites that are not required to be filed for review by the Financial Industry Regulatory Authority (FINRA). This release comes, according to the SEC, because many such organizations have been filing materials located on their social media sites with FINRA "out of an abundance of caution". You can read the SEC's press release and access the full IM Guidance Update: SEC Issues Guidance Update on Social Media Filings by Investment Companies.

Federal Court Sets Guidelines for Denying Attorney-Client Privilege on Communications

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Hiring a lawyer for a general counsel role - either in-house or by retaining outside counsel to perform that role - can benefit organizations in countless ways. Unlike outside attorneys who are consulted on a piecemeal basis, corporate or general counsel are very familiar with the organization's operations, leadership, and goals. Because they are often privy to and included in discussions of key business decisions and developments, they can ground their legal advice on a thorough understanding of the organization and its history. That intimate connection to the organization's business life, however, operates as a double-edged sword. As some court decisions illustrate, the regular inclusion of general counsel in business communications can strip communications with corporate counsel of the presumption that they are protected by attorney-client privilege.

For more information, please click here.

National Labor Relations Board on Employer Social Media Policies

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social-media-work.jpgAs use of social media continues to increase, so do concerns by employers regarding employee use of social media as it relates to the workplace. In response, many employers are drafting new or revised policies covering use of social media particularly as it pertains to confidentiality, privacy, intellectual property, and contact with the media and government agencies.

The Acting General Counsel of the National Labor Relations Board ("NLRB"), Lafe Solomon, has released a report on employer social media policies.  In many cases, some or all provisions of employers' policies governing the use of social media by employees have been found to be unlawful. Provisions are found to be unlawful when they interfere with the rights of employees under the National Labor Relations Act. Consider the following examples, which may be surprising.

In one case, the NLRB addressed an employer's rules on communication of confidential information via social media.  The employer's social media policy provided in relevant part:

If you enjoy blogging or using online social networking sites such as Facebook and YouTube, (otherwise known as Consumer Generated Media, or CGM) please note that there are guidelines to follow if you plan to mention [Employer] or your employment with [Employer] in these online vehicles . . . Don't release confidential guest, team member or company information. . . .

The NLRB concluded these rules were unlawful as they could chill the exercise of Section 7 rights (e.g., self-organization, collective bargaining, etc.) in violation of the National Labor Relations Act. More specifically, the instruction that employees not "release confidential guest, team member or company information" was interpreted as prohibiting employees from discussing and disclosing information regarding their own conditions of employment as well as the conditions of employment of employees other than themselves.

In another case, the NLRB focused on an employer's social medial policy for protecting company information, which provided in relevant part:

Employees are prohibited from posting information regarding [Employer] on any social networking sites (including, but not limited to, Yahoo finance, Google finance, Facebook, Twitter, LinkedIn, MySpace, LiveJournal and YouTube), in any personal or group blog, or in any online bulletin boards, chat rooms, forum, or blogs (collectively, 'Personal Electronic Communications'), that could be deemed material nonpublic information or any information that is considered confidential or proprietary. Such information includes, but is not limited to, company performance, contracts, customer wins or losses, customer plans, maintenance, shutdowns, work stoppages, cost increases, customer news or business related travel plans or schedules. Employees should avoid harming the image and integrity of the company and any harassment, bullying, discrimination, or retaliation that would not be permissible in the workplace is not permissible between co-workers online, even if it is done after hours, from home and on home computers. . . .

The rule prohibiting employees from posting information regarding the employer that could be deemed "material non-public information" or "confidential or proprietary" was found unlawful by the NLRB. This was chiefly due to the terms "material non-public information" and "confidential or proprietary" being vague and/or overbroad, and the associated risk of limiting Section 7 rights.

Some other trends in the guidance provided by the NLRB include that expression of opinions by employees is largely protected, and prohibitions on activities in social media used by unions for communication or organization are particularly safeguarded.  On the other hand, the guidance appears to enable employers to protect themselves against "rants" by individual employees, and to enforce important workplace policies (like sexual harassment, workplace violence, and/or other workplace policies) in employee use of social media.

As can be seen from the examples above, employers should work with counsel to carefully craft their social media policies to both protect their own interests while not impeding employee rights under the National Labor Relations Act.

Pillsbury Rocks Social Media Week in NY and DC - Game On!

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Thank you to everyone who joined us in both New York and Washington, DC for our Social Media Week events - Game On!

Special thank you to all of our panelists: Randy Leibowitz, Mike Scafidi, Tim Ettus, Lou Kerner, Peter Corbett, Jim Gatto, Sean Kane, Lauren Lynch Flick and Tina Kearns (many featured in the picture and video below).  

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As promised, we recorded our DC program Social Media Promotions, Contests and Sweepstakes and Social Media Audits. Check it out!

(Part 1) Emerging Legal Issues in Social Media: Social Media Contests, Sweepstakes, and Promotions please click here
http://youtu.be/_Uts2BT542M

(Part 2) Social Media Audits please click here http://www.youtube.com/watch?&autoplay=1&v=_Uts2BT542M#t=2489s

If you would like any additional information about these topics or the events, please contact the Social Media, Entertainment & Technology team.