Employment Counseling & Risk Management

A recent decision by the Court of Appeals for the Second Circuit highlights the risk companies face in not tightly controlling their ownership of social media accounts used for company marketing and promotional purposes. In the case, a social media influencer, Gutman, was hired by a fashion company, JLM Couture, to design a line of bridal wear in exchange for a salary and “additional compensation” tied to sales of the products she designed. The employment agreement included terms that protected JLM’s brand and use of Gutman’s name, including restrictions on her own use of her name, JLM’s ownership of specific content she created for JLM, and noncompete, non-solicitation and nondisclosure clauses.

The agreement also contained a work-for-hire clause, delineating that JLM owned “any other works conceived of or developed by [Gutman] in connection with her employment with the Company involving bridal clothing, bridal accessories and related bridal or wedding items.” But the agreement was silent on social media account ownership, which proved to be a point contention for the Second Circuit. In particular, the Court of Appeals noted that the work-for-hire clause, which otherwise could have been dispositive, was not relevant because the examples given before the “any other works” phrase were “designs, drawings, notes, patterns, sketches, prototypes, samples, [and] improvements to existing works” and social media accounts were distinguishable from these examples.

Here, Gutman had created Instagram and Pinterest accounts in her own name, using a derivative of her name that she had used for other social-media profiles before being hired. Gutman also created the accounts using her personal cell phone number and email account, which she also used for work purposes. She created her own passwords, and JLM did not direct her to open the accounts. The platforms became “critical advertising platforms” for JLM’s products, noted the Court, where “[p]romotional posts were interspersed with more personal content, in a strategy that JLM referred to as the ‘personal glimpse.’”

Although the District Court found that the company owned the two accounts, the Second Circuit reversed that finding and remanded the case to the District Court. Significantly, the Second Circuit held in a case of first impression that social media accounts “should be treated in the first instance like any other form of property. This includes determining the original owner…. When Gutman created the Disputed Accounts, any associated property rights belonged to someone. And if she created them using her personal information and for her personal use, then those rights belonged to her, no matter how the Disputed Accounts may have been used later.”

In reaching its decision, the appeals court found that while the company appeared to own all content that Gutman posted relating to the company’s products and brands, the company likely did not own the accounts themselves. The court thus drew a line between account ownership and “rights in content posted on them—including ancillary content like direct messages, captions, profile pictures, and the like,” stating that account ownership on the one hand and the content posted on said account on the other hand “need not be intertwined.” Of course, this is difficult to reconcile with reality, and it will be interesting to see how the District Court addresses this on remand.

The Court also found that just because Gutman transferred some or all of her rights in particular content posted on the two accounts, that “does not by itself support an inference that she transferred ownership of the Disputed Accounts themselves. Nor should it ordinarily matter to the question of ownership whether an account owner permits others to assist in managing the account, or whether one or the other party holds itself out as owning it.”

Finally, the Court held that the language of the employment agreement itself, which the District Court relied upon, did not support the lower court’s decision because the agreement’s language focused on content, and not account ownership. The Second Circuit emphasized that “the analysis of social-media-account ownership begins where other property-ownership analyses usually begin—by determining the account’s original owner. The next step is to determine whether ownership ever transferred to another party. If a claimant is not the original owner and cannot locate their claim in a chain of valid transfers, they do not own the account. We thus remand to the district court to analyze ownership of the Disputed Accounts under the framework discussed above.”

Against this background, it is important for companies that hire employees and independent contractors to create, develop and administer social media accounts, to expressly provide in their agreements that all social account ownership – including account handles – belongs to and are assigned to the company, along with all content that’s published on such platforms and used in any manner for the benefit of the company. Such provisions should also require that employees/independent contractors only use their assigned company email addresses and company contact information to create such accounts.

The Case is JLM Couture, Inc. V. Gutman, No. 21-2535 (1/17/2024 2d Cir. 2024).

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For more information on this issue or other employment or e-commerce matters, please contact:

Carol M. Goodman at +1 212 592 1465 or [email protected]
Barry Werbin at +1 212 592 1418 or [email protected]
Basil Sitaras at +1 212 592 1572 or [email protected]

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