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01/2005 |
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Website Liability for Public Companies
Kenneth B. Abel
Introduction Federal securities law applies to the content of an issuer's website in the same manner as any other statements made by or attributed to the Company. Website liability issues can arise in conjunction with, among other circumstances, links to Company press releases, hyperlinks to third party sites, information presented during a stock offering and website information that becomes outdated. The following memorandum is necessarily general and may not be applicable to your particular circumstances. If you have any questions please do not hesitate to call us. Links to Company Press Releases To address this potential problem, companies should present their press releases in a manner that best reduces the possibility of investor confusion regarding the period of time during which the information in the releases should be considered accurate and up-to-date. This can be accomplished by creating a separate "archive" on the company website for press releases that are no longer timely, along with other historical documents. A separate link should then be provided for each document in the "archive" section, and each link should be clearly labeled with the date that the document was first released. Companies should also make it clear to investors that the information contained in the "archive" section is not being actively updated. All press releases, even those not in the "archive" section, should have a date that clearly accompanies their links. The date on the byline of the release may not be considered sufficient by itself. Hyperlinks to Third Party Sites Entanglement Adoption The context of the hyperlink includes whether the Company explicitly endorses the information contained in the hyperlink, such as a phrase next to the hyperlink stating: "This website contains a great description of our company." The Company might implicitly support the accuracy of the information in a hyperlink if, for example, the Company provides a hyperlink to a newspaper article and the text accompanying the hyperlink states, "as reported by newspaper XYZ" or if the Company provides a hyperlink to an analyst's report. The SEC will also determine that an issuer has adopted hyperlinked information if the hyperlink is embedded in a document required to be filed or delivered under the federal securities laws. Risk of confusion is measured by the presence or absence of precautions that the Company has taken against investor confusion regarding the source of the hyperlinked information. The Company should consider providing an intermediate screen that clearly and prominently indicates that the visitor is leaving the Company's website and that the subsequent information is not being provided by the Company. The Company should also provide a clear and prominent statement disclaiming responsibility for or endorsement of the information provided by the hyperlink. Also, the risk of confusion is increased if the hyperlinked information is framed or inlined, which allows information on the issuer's website to appear on the screen along with information from the hyperlinked site. The presentation of hyperlinked information is also relevant in determining whether the Company has adopted the hyperlinked information. With respect to a particular piece of information regarding the Company, if the Company selectively provides some hyperlinks to that information but not others, then this selective process could signal an adoption of the information because it is an attempt to control the flow of information to investors. Also, the layout of the screen could signal an adoption by the Company of the hyperlinked information. This includes the prominence of the hyperlink, size, location, color, font or any other method of differentiating one hyperlink from another. These factors act as guidelines in determining whether the Company has adopted hyperlinked information. The list of factors is not exhaustive, and the SEC will make its determination by examining all of the relevant factors as a whole. Website Communication During an Offering The Company should make sure that the information on its website during an offering is limited to ordinary-course business and financial information, such as advertisements of products and services and Exchange Act reports required to be filed. Before beginning the offering process, companies should review and revise their websites so that there is no content that could be considered an "offer," nor any content that could condition the market. If anyone notices the resulting revisions and questions the company, it should follow a "no comment" policy. During the securities offering, no mention of the offering should be made on the website other than permissible communications such as a tombstone ad type announcement for public offerings. Duty to Update Website Contents In order to avoid the gray areas associated with materiality and the circumstances upon which a duty to update exists, the Company should regularly update all the information on its website. If there is certain information that is not being updated, such as the information in press releases, the Company should clearly identify the fact that this information is not updated. If the Company chooses not to update its website information, it should clearly state the date that the information was posted and the fact that the information has not since been updated. Mandatory Filings and Information That Should Appear on a Company's Website Current, Quarterly and Annual Reports Under the rules, a company must disclose in their annual reports on Form 10-K: (i) the company's website address, if it has one, (ii) whether the company posts on or through (via hyperlink) its website its annual reports (Form 10-K), quarterly reports (Form 10-Q) and current reports (Form 8-K) as soon as reasonably practicable after such material is filed with or furnished to the SEC, (iii) if applicable, the reasons why the company does not make such reports available on or through its website and (iv) if the company does not make such reports available on or through its website, whether the company will provide electronic or paper copies of such material free of charge upon request. In the release adopting the rules, the SEC stated that, at a minimum, access to reports should be available for at least a 12-month period and that it "would be desirable for companies to provide access to their previous reports on an appropriately archived portion of their website over an even longer timeframe." The release also suggests that companies should provide access to all reports filed with the SEC, including proxy statements. Regardless of whether the Company is subject to the above rules regarding website disclosure, we recommend that the Company post all reports that it files with the SEC on its website or provide hyperlinks to those reports. If the reports are posted, we also recommend that all reports older than one year be "archived" in a manner similar to that described above for press releases. Beneficial Ownership Reports The Company should coordinate with its Section 16 insiders to assure itself that it will comply with the filing deadline. If the Company elects to comply with the posting requirement through a hyperlink to Edgar, it will automatically comply with the filing deadline. Conclusion |
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Ober, Kaler, Grimes & Shriver
Maryland Washington, D.C. Virginia |
