Social Media Ownership: Key Court Rulings and Settlement

We have previously written an OnPoint about the law concerning ownership of social media accounts in light of the explosive growth in the use of such media for commercial advertising, product development and customer engagement. We presented on this and related topics at the Federal Bar Association and MyLawCLE webinar on September 6, 2023. We then wrote an OnPoint about the Second Circuit's decision in JLM Couture, Inc. v. Hayley Paige Gutman, in which the Second Circuit instructed that ownership and control of social media accounts created during employment or in connection with one's employment should be determined on a case-by-case basis without a pre-determined multifactor test. While acknowledging the meteoric rise in the importance and value of social media, the Second Circuit noted that historically the "law has accommodated new technologies within existing legal frameworks." 91 F.4th 91 (2d Cir. 2024). Thus, the Second Circuit held that analyzing social media ownership should begin by determining the original owner and should continue with a determination of whether ownership had 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." The Court reversed and remanded the issue for further proceedings to apply the law as set forth on appeal. Since that appellate decision, the District Court has ruled. See JLM Couture, Inc. v. Gutman, No. 20-CV-10575-LTS-SLC, 2024 WL 2053856 (S.D.N.Y. May 8, 2024).

The Trial Court Decision and Subsequent Settlement

On May 8, 2024, Chief Judge Swain of SDNY reconsidered her earlier preliminary injunction decision that had held in favor of JLM, finding that Gutman created the accounts to "showcase JLM's products" and awarded sole control of the two social-media accounts - Instagram and Pinterest- to JLM.

After recounting the factual history (which the Court stated was not disturbed by the Second Circuit's opinion), Chief Judge Swain sought to answer the pivotal question: "whether Ms. Gutman was the original owner of the Disputed Accounts." Id. at *21.

The Court found that "the record makes clear that Ms. Gutman herself opened the accounts, obtaining the rights to use the social media platforms to post information and communicate with others, in her own name using the @misshayleypaige handle, and that she was at least partially motivated to create the Disputed Accounts for her personal use even if she saw them as potentially useful in promoting Hayley Paige merchandise manufactured by JLM." Id. Although JLM had argued as to why the accounts were created-i.e., in their view, as advertising tools for JLM-the Court instead said that "the Court's task in light of the decision on appeal is to determine who owned the Disputed Accounts at their creation and whether the ownership of the Accounts was ever transferred to JLM, if JLM was not the original owner." Id. at 23. The Court was guided by the Second Circuit's express language that "how the Disputed Accounts may have been used" after they were initially created is not relevant to the ownership of the accounts at creation. Id. at 23 (quoting the Second Circuit Opinion at 17).

JLM then argued that the Court must look at its contract with Ms. Gutman, in which a work-for-hire provision covered all "designs, drawings, notes, patterns, sketches, prototypes, samples, improvements to existing works, and any other works conceived of or developed by [Ms. Gutman] in connection with her employment with the Company involving bridal clothing, bridal accessories and related bridal or wedding items." Id. at 25 (quoting the parties' contract). But Chief Judge Swain, like the Second Circuit, was "not persuaded" that these terms covered social media accounts. Id. at 26. And that is because, as the Second Circuit instructed, "social media accounts share none of the core attributes of the specific terms in the work-for-hire list, which describe steps in the process of fashion design . . . and appear to be presumptively copyrightable." Id. at 25-26 (cleaned up).

Because Ms. Gutman appeared to have owned the account at inception-and was therefore the "original owner" under the Second Circuit's test-the Court required JLM to "locate its claim in a chain of valid transfers in order to claim ownership of the Disputed Accounts." Id. at 28. But this next step proved fatal, as there was nothing in the record to indicate any such transfer. The Court therefore ended its analysis by stating it had "used the framework outlined in the Second Circuit Opinion to analyze JLM's application for an injunction giving it control of the Disputed Accounts" and concluded "that JLM has failed to carry its burden of demonstrating a clear or substantial likelihood of success in establishing that it was the original owner or transferee of the Accounts, and thus it has failed to show a clear or substantial likelihood that it can establish a crucial element of its conversion and trespass to chattels claims concerning the Accounts." Id. at 29.

On May 14, 2024, JLM and Ms. Gutman settled their lawsuit. Ms. Gutman paid JLM a one-time payment of US$263,000 in exchange for transfer of the disputed accounts and their associated intellectual property.

Conclusion

As we stated in our last OnPoint: "analyzing social media ownership should begin by determining the original owner and should continue with a determination of whether ownership had transferred to another party." This simple test tracks traditional property rights analysis, and disfavors equitable approaches that consider post-inception behavior by the parties. Chief Judge Swain's decision faithfully applied the Second Circuit's decision above. As we previously stressed, those with significant social media holdings and investments should document their respective rights in social media accounts by looking to who took original ownership of the social media account, rather than why the account was created or in what way it was used after creation. And although the parties' contract in this case did not control in this case, that does not mean other employment agreements or other work-for-hire provisions will not cover social media accounts.