SEC Looks Into Hyperlink Liability
Is there any legal liability inherent in linking? According to a Security and Exchange Commission policy proposal, the regulatory agency thinks companies should be held liable for linking to false or misleading information that could affect the company’s stock price from their website.
In the SEC document (PDF), the commission attempts to define when a hyperlink from a public company’s website constitutes an endorsement by the company of the referenced information, especially in regard to securities information.
The commission stops short of expressing possible liability in all cases, but instead outlines a framework for assessing the context of a hyperlink. From the document:
Under Section 10(b) of the Exchange Act and Rule 10b-5, a company can be held liable for third-party information to which it hyperlinks from its web site and which could be attributable to the company. As we explained in the 2000 Electronics Release, whether third-party information is attributable to a company depends upon whether the company has: (1) involved itself in the preparation of the information, or (2) explicitly or implicitly endorsed or approved the information….
While we are addressing the use of hyperlinks to third-party information in the context of the antifraud provisions, this guidance does not affect our interpretation regarding the use of hyperlinks to third-party information in the context of offers and sales of securities under the Securities Act.
As to deciding that context, Acting Secretary Florence E. Harmon defines it this way:
- Context of the hyperlink – what the company says about the hyperlink or what is implied by the context in which the company places the hyperlink;
- Risk of confusing the investors – the presence or absence of precautions against investor confusion about the source of the information; and
- Presentation of the hyperlinked information – how the hyperlink is presented graphically on the web site, including the layout of the screen containing the hyperlink
The commission says “the focus should be on whether a company has explicitly or implicitly approved or endorsed the statement of a third party such that the company should be liable for that statement.”
such a policy will conflict with existing protections preempting liability for links to third party content under the oft-cited 47 USC 230 of the Communications Decency Act. He also believes the policy guidance treats online media differently from offline.
, saying online and offline are certainly two different worlds, and comparing the two ignores certain “social facts that reasonable observers know about hyperlinks.”