SEC Proposes that Companies Should Be Liable for Content Linked from the Company’s Website

By Eric Goldman

[Note: I haven't had a chance to blog the Veoh case--coming soon!]

The Securities and Exchange Commission (the SEC) is proposing an interesting policy with respect to a securities issuer linking to discussions about it. See pages 31-37 of this document. Effectively, the SEC is proposing that a securities issuer can be liable for any misstatements on linked pages if “the context of the hyperlink and the hyperlinked information together create a reasonable inference that the company has approved or endorsed the hyperlinked information.” The SEC’s discussion about linking also has some interesting and largely exceptionalist discussion about the ontological meaning of a link.

At minimum, the SEC’s proposed position may create a fascinating doctrinal clash with 47 USC 230, which seems to preempt any liability for content on third party websites–even if the linker “endorses” the linked content, and even if the SEC says otherwise (unless the SEC makes it part of federal criminal law, which is excluded from 230’s immunization). If anyone is interested in working with me to submit a comment to the SEC (due Nov. 5) to explain why 47 USC 230 may preclude the SEC’s approach, let me know.

This proposal raises an even broader issue how 47 USC 230 overlays on securities laws generally. I can’t really think of a defendant who has litigated 230 as a defense to securities fraud claims, but it seems like a tenable defense for any online securities marketing done by third parties–a result which might wreak havoc on existing secondary doctrines of civil liability for securities fraud. This looks like an excellent but complicated paper topic.

UPDATE: James Grimmelmann takes exception to my reference of the SEC’s policies as exceptionalist. I didn’t build out the concept in this brief blog post, but I am thinking about making it part of the comments to the SEC, so I’m planning to elaborate on why I think it’s exceptionalist soon.