Hyperlinks

• What are "hyperlinks"?
• What types of hyperlinks exist?

• How are hyperlinks legally treated?
• What legal theories could be used to determine who is liable for content linked together?
• What is the "envelope" theory?
• What do critics say about the envelope theory?
• Why may a company be liable for "deep linking"?

• Can companies be liable if they link to third party content?
• When can companies be liable for their links to third party content?
• What is the SEC's analytical framework to determine if companies are liable for linked third party content?
• How can a company's statements about a link to third party content make the content attributable to a company?
• Can a company be liable for a third party link even if it's silent about it?
• What are adequate warnings about the source of linked content?
• Can a disclaimer protect a company from liability for links to third party content?
• What is "selective" linking?
• How should a company design a Web page so that linked content is not attributable to it?
• How does the envelope theory apply to links in the SEC's link liability framework?
• Can a company link from offering materials on its Web site to third party content?
• Does the SEC's link liability framework provide exceptions for online strategic alliances between companies?
• Does a third party have federal securities law liability if a company links to its content so that the third party content is an "offer" for the company?

• Can a company include links in its online SEC document?
• Can a company link from its online SEC document to third party content?
• Does a company have liability for content that is linked from content linked from its online SEC document?
• When must a company file third party content that it links to from its online SEC document?
• What reasonable steps can companies take to inactivate a URL?
• Is a company responsible for the content related to an inactive link included in its SEC document?
• Do companies link to third party content from their online SEC documents?

• Can a company use linked content to satisfy line item disclosure requirements for a SEC document?
• How can a company file the third party content that it links to from its SEC document?
• When must a company obtain a consent from a third party to file linked content?
• Can a company link from its Web site to its SEC documents available on the SEC's Web site?
• Can a company link to its own content in SEC documents that it files on EDGAR?
• Are "inactive" URLs treated the same as active URLs?
• Can a company use links to incorporate by reference other SEC documents into a filing?

• Should companies use hyperlinks on their Web sites?
• How should a company use links to third party content on its investors relations' Web page?
• How should a company use links to its own content from its investors relations' Web page?
• Why should companies not link to analyst reports?

• What is "framing"?
• Why would a company want to "frame" third party content?
• Why might a company be liable if it "frames" third party content?
• What legal actions have been brought against framing?
• Can a company be liable if it "frames" misleading third party content under the federal securities laws?
• Can a company be liable if its misleading content is "framed" under the federal securities laws?
• Do companies "frame" content on their IR Web pages or with offering materials?

• How can brokers use links on their Web sites?

• What do critics of the SEC's positions on links say?
  

   

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Words or images on a Web site that investors can click on to "jump" to content either on the same Web page, another Web page within the same Web site or on another Web site altogether.

Hyperlinks are created with hypertext markup language (known as "HTML") or other markup languages (such as extended HTML known as "XML") and are a powerful tool since they allow investors to easily find related resources. Also known as "links" or "hot links."

Link types are multiplying as markup language evolves beyond HTML. At this time, the most common types include:

• Hypertext links - links that are text but are a different color than normal text (typically light blue) and underlined.
• Image links - links that are graphical images that can be clicked on (whose related issues basically are the same as framing). See more @ framing links.
• Framing links - links to content from another Web site without an investor actually leaving the original Web site. See more @ framing links.
• In-line links - similar to "framing" but does not have a visible border.
• Deep links - links that lead to content that is not on the home page of another Web site - in other words, it links to content "deep" within a site.

B. Hyperlink Legal Theories

How are hyperlinks legally treated?

To a large extent, it's too early too tell. The parameters of hyperlink use have not been addressed in most areas of the law. So far, only a few cases involving links have been decided (that principally involve framing and copyright violation issues) and administrative agencies are moving cautiously.

The SEC was one of the first agencies to provide a paradigm for link use - in the context of who has liability for linked content under the federal securities laws. See more @ the SEC's link liability framework.

Source: The SEC's link liability framework is set forth in Section II.B. of Release 33-7856 (May 4, 2000). An analysis of the legal issues related to links is in Maureen O'Rourke "Fencing Cyberspace: Drawing Borders in a Virtual World," 82 Minn. L.Rev. 609 (1998) and Kara Beal "The Potential Liability of Linking on the Internet: An Examination of Possible Legal Solutions," 1998 BYU L.Rev. 703 (1998).

There are a number of possible regulatory approaches, such as:

• No legal status - there are no legal consequences for linking to content at all as if the links didn't exist.
• Envelopes - linked content considered to be together. See more @ envelope theory.
• Exit notices - if a visitor clicks on a link, an exit notice informs the visitor that the linked content is not within the Web site sponsor's control.
• Disclaimers - prominent disclaimer use precludes a visitor from reasonably relying on linked content.
• Monitor third party content - a Web site sponsor regularly monitors linked third party content to ensure that it's not misleading or inappropriate.
• Full and complete responsibility - any content that is linked is fully adopted by the party creating the link.

Under each of these theories, some legal issues are resolved and some remain.

Note: The SEC has adopted a few of these approaches (but not the first nor the last) as well as other approaches in its link liability framework described in Section II.B. of Release 33-7856 (May 4, 2000).

Content linked together is considered as if it was mailed in the same envelope. In other words, by linking to third party content, a company takes responsibility for it. See more @ SEC's use of envelope theory.

Source: The SEC first introduced this theory in Examples 15 and 16 from Release 33-7233 (October 6, 1995). The SEC acknowledged that the envelope theory does not work in every circumstance and limited the theory's application in its link liability framework described in Section II.A.4 of Release 33-7856 (May 4, 2000).

They are concerned that it effectively limits the ability of companies to use links - and links are an integral component of the Web's power.

In addition, critics note that the theory doesn't solve numerous issues such as - how are links within links treated? In other words, how many levels of links and related content must a company include in its envelope? See more @ liability for links within links.

Source: The SEC acknowledged that the envelope theory does not work in every circumstance and limited the theory's application in its link liability framework described in Section II.A.4 of Release 33-7856 (May 4, 2000).

Because the link bypasses the home page of the Web site to which the link leads.

This is detrimental to the party whose content is linked because the home page often is where visitors are informed of the terms and conditions of visiting the site - and perhaps even more important, the home page typically contains important branding and advertising information.

The SEC has not addressed deep linking - except for informal staff guidance that permissible links from SEC documents to other SEC documents must be links to the first pages of those documents, not deep links to content within those documents. See more @ linking from SEC documents.

In a copyright infringement case, a court recently held that a company was not liable for deep-linked content.

Source: The recent "deep linking" copyright infringement case is Ticketmaster Corp. v. Tickets.com, Inc., No. CV 99-7654 (CD.Cal. March 27, 2000). The SEC staff's informal guidance was provided orally at a conference in response to a question - so it's not very reliable.

Yes - the SEC clearly has stated that companies can be liable for the content that they link to from their Web sites.

This can be particularly troubling for linked third party content, since a company typically cannot - or does not - want to exercise control over third party content. If a company is found responsible for third party content, it can be liable for misleading information on the third party's Web site - and may have to file the third party content with the SEC. See more @ filing third party content.

Another problem is that forward-looking information on third party sites would not have safe harbor language that the linking party could rely on for protection - even though the linking party may be deemed to have adopted the information. See more @ when can companies be liable for linking to third-party content.

Source: The SEC believes that companies - as well as other market participants - can be liable for linked content under Section 10(b) and Rule 10b-5 as well as Section 17(a) of the Securities Exchange Act of 1934 as stated in footnotes 48-50 and accompanying text of Release 33-7856 (May 4, 2000). In footnote 52 of Release 33-7856 (May 4, 2000), the SEC cited its analysis in In the Matter of Presstek, Inc., Release 33-39472 (December 22, 1997) to support its application of the antifraud provisions to links.

Depends on whether a company has involved itself in the preparation of the third party content - or explicitly or implicitly endorsed or approved the content.

The SEC has established a framework consisting of non-exclusive factors to determine whether a company is deemed to adopt and be liable for linked third party content. The SEC emphasizes that no single factor dictates the outcome of the analysis. See more @ what is the SEC's link liability framework.

Under the SEC's framework, it's more likely that a company will be held responsible for linking to specific articles or reports - compared to general news or information sites. However, a company may even be found liable for these general information sites - it depends on the analysis under the SEC's framework.

One notable aspect of the SEC's link liability framework is that it's one of the relatively rare instances where the SEC has provided guidance about the application of anti-fraud liability.

Source: As discussed in footnotes 51-52 and accompanying text of Release 33-7856 (May 4, 2000), the SEC's link liability framework appears to be partially based on "entanglement" and "post-publication adoption" theories that normally apply in the analyst research context. However, the SEC specifically noted that it was not addressing the entanglement theory in connection with links in this release. See more @ entanglement theory applied to links.

The SEC's framework contains 6 factors that relate to the context, risk of confusion and presentation regarding a link. These non-exclusive factors are:

• Importance of link - what a company says about the hyperlink. See more @ how companies shouldn't emphasize links.
• Link's context - what is implied by the context in which a company places the hyperlink. See more @ context of a link.
• Disclosure about link - whether a company provides warnings about the source of the content. See more @ disclosure about links.
• Disclaimer use - whether a company uses a clear and prominent disclaimer that precedes or accompanies the link, such as an exit notice. See more @ use of disclaimers.
• Selective linking - whether a company selectively links to some content, but not other related content. See more @ what are selective linking practices.
• Link presentation - whether a company presents a link in a way that influences disproportionately an investor's decision to click on it. See more @ how links should be presented.

Source: The SEC's link liability framework is described in Section II.B of Release 33-7856 (May 4, 2000).

Quite easily. If a company explicitly endorses third party content, it's likely to be attributable - but even subtler statements can lead to attribution.

The SEC has provided examples of statements that reflect the importance of a link such as:

"XYZ's Web site contains the best description of our business that is currently available," and "As reported in Today's Widget, our company is the leading producer of widgets worldwide."

Source: These examples are in Section II.B.1(a) of Release 33-7856 (May 4, 2000).

Yes - the context alone may imply that the linked content is attributable to the company.

The SEC has not provided further guidance about the circumstances under which a company who remains silent is responsible for linked content - this can be an overlooked pitfall since many companies have third party links about which they are silent. See more @ how often do companies use disclaimers for links.

Source: The SEC specifically noted that silence is not necessarily golden in Section II.B.1(a) of Release 33-7856 (May 4, 2000).

It's a facts and circumstances determination - but the SEC notes that it's less likely that the linked content is attributable if the company provides an exit notice that clearly and prominently informs investors that:

• they are leaving the company's Web site, and
• that the linked content is the third party's responsibility.

See more @ what are pop-up exit notices.

Source: The SEC's exit notice guidance is in Section II.B.1(b) of Release 33-7856 (May 4, 2000).

No - the SEC has made it clear that disclaimers alone cannot provide full protection from liability.

It's still a facts and circumstances determination - since disclaimer use is just one of several factors that the SEC has established. See more @ disclaimer use.

Note that Congress and the SEC have had long-standing policy objections regarding specific disclaimers of anti-fraud liability - and that indemnification of such liability is contrary to the federal securities law and the SEC's policy. In fact, companies are required to provide an undertaking regarding the SEC's position on indemnification when they file a registration statement.

Some commentators believe that disclaimers alone should relieve a company from liability for third party content in certain circumstances.

Source: The SEC's statement that disclaimers cannot guarantee that companies will not be liable is in footnote 61 and accompanying text of Release 33-7856 (May 4, 2000). The SEC's position regarding indemnification for anti-fraud liability is reflected in Section 14 of the Securities Act of 1933, Section 29(a) of the Securities Exchange Act of 1934, Item 510 of Regulation S-K and the undertaking in Item 512(h) of Regulation S-K. The Committee on Federal Regulation of Securities of the Business Law Section of the ABA noted that disclaimers should provide protection from liability for third party content in certain circumstances in its August 2, 2000 comment letter on Release 33-7856 (May 4, 2000).

If a company links to only a portion of third party content about a particular matter - or if it selectively establishes and terminates a link depending on the nature of the content.

For example, it may be selective linking if a company links only to positive media articles - but ignores negative articles about the same topic. Obviously, most companies do not want to highlight negative articles about itself - so it may be best not to link to third party content from online investor communications and avoid this dilemma.

The selective linking analysis focuses on whether a company is attempting to control the flow of information to investors. In other words, selective linking is a form of information manipulation.

Source: The SEC's selective linking discussion is in Section II.B.1(c) of Release 33-7856 (May 4, 2000).

Avoid highlighting one link compared to other links - maintain the relatively same prominence, color, size and location of all links. Otherwise, it appears as if the company is attempting to manipulate the information flow to investors.

Source: The SEC's presentation discussion is in Section II.B.1.(c) of Release 33-7856 (May 4, 2000).

The SEC follows the envelope theory in the delivery context (so that documents linked to each other are considered delivered together) - but the envelope theory does not apply to determine whether Web site content constitutes impermissible free writing during a public offering. See more @ the envelope theory in an offering - or see more @ the envelope theory to electronically deliver.

Source: The SEC confirmed that the "envelope theory" is alive and well in just the delivery context in Section II.A.4. of Release 33-7856 (May 4, 2000) and that Examples 15 and 16 from Release 33-7233 (October 6, 1995) are still good electronic delivery precedent.

It can be risky. It's quite possible that the linked content is considered part of the company's offering materials - particularly if the third party content falls within the definition of an "offer."

If the linked content falls within the broad definition of "offer," the SEC states that there is a strong inference that the linked content is attributable to a company.

If attributable, a company will have heightened liability for the content and have to file and/or deliver the linked content (depending on whether the offering materials that contain the link need to be filed or delivered).

This also raises other issues, such as whether the third party needs to consent to have its content filed or delivered. See more @ links during public offerings.

Source: In Section II.B.2 of Release 33-7856 (May 4, 2000), the SEC stated that there is a strong inference that a company is responsible for linked third party content that falls within the definition of an "offer" under Section 2(a)(3) of the Securities Act of 1933.

No - so companies need to consider placing disclaimers and other precautions for their links to a strategic partner's Web site.

The SEC's lack of an exception for strategic alliances has been criticized - most strategic partners do not like exit notices disclaiming responsibility for their content as this is counter to the partnership philosophy. See more @ liability for strategic partner content on a Web site.

It's unlikely. The SEC has not addressed this issue - but it would appear unreasonable for third-parties to be liable for another party's actions, even if it had agreed to allow the link.

However, if a third party consents to be named as an expert in a company's offering materials, it would be liable as an expert for its content. Similarly, if a third party is knowingly or recklessly involved in a fraudulent scheme with the company, the SEC can take action under an aiding and abetting claim. See more @ liability for someone that consents to be named as an expert.

Note that only the SEC staff can enforce an aiding and abetting violation - no private right of action exists.

Source: Section 20 of the Securities Exchange Act of 1934 is the basis for a SEC enforcement action for aiding and abetting - the U.S. Supreme Court struck down a private right of aiding and abetting in Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994).

Yes - but a company automatically is deemed to have included the linked content in its SEC document, regardless if the link is to third party content or its own content. The result is that the company is liable for the linked content and must file and deliver the linked content as part of its SEC document. See more @ is a company permitted to link from its online SEC document to third party content.

For example, if a company links to third party content from a Section 10 prospectus, the third party content is deemed to be part of the prospectus and must be filed with the SEC and delivered as part of the prospectus. See more @ challenges in filing third party content.

Source: The SEC distinguished SEC document links from other types of links on a Web site in footnotes 41-42 and accompanying text of Release 33-7856 (May 4, 2000).

Yes - but that third party content is deemed part of the SEC document for liability, delivery and filing purposes.

Source: The SEC addressed third party content in footnote 57 and accompanying text of Release 33-7856 (May 4, 2000).

In other words - is a company liable for links within a link (known as "secondarily linked content")?

It's somewhat unclear. The SEC has noted that a company should specify where it intends that its responsibility for linked content liability begins and ends - but the SEC has not provided detailed guidance on how this works in practice and no company appears to have made this disclosure yet.

Although uncertain in the absence of further SEC guidance, if a company discloses that it does not intend to be responsible for content beyond the initial third party content it consciously links to - this probably is sufficient to cut off further responsibility (absent other factors that indicate that the company intended investors to access the secondarily linked content).

If a company is silent as to whether it endorses or adopts the secondarily linked content, the SEC's guidance that the company should disclose a cut-off would appear to make the company potentially responsible - but this result may not be reasonable since the potential liability for secondarily linked content is enormous (as large amounts of content are indirectly linked together over many layers of links).

Source: The SEC noted that companies must make it clear where their responsibilities begin and end in footnote 41 of Release 33-7856 (May 4, 2000).

Whenever it includes a link within its SEC document to third party content.

There are two exceptions to this - the SEC's URL and the company's own URL, so long as a company:

• takes reasonable steps to inactivate the URL (see more @ how to "inactivate" a URL"), and
• in the case of URLs for a company's Web site, includes the statement "Our SEC filings are also available to the public from our Web site" near the company's URL.

Companies are required to disclose the URL for the SEC's Web site in most of their SEC documents. However, the SEC's regulations do not require companies to include their own URLs in their SEC documents - but many companies disclose their URLs voluntarily.

Note that EDGAR presently cannot accommodate links to third party content, so particular procedures must be followed when filing documents with third party links. See more @ filing third party content on EDGAR.

Source: The SEC discussed these two exceptions in footnote 41 of Release 33-7856 (May 4, 2000). Item 502(a)(2) of Regulation S-K is one of the SEC regulations that require the disclosure of the SEC's URL. As cited in footnote 42 of Release 33-7856 (May 4, 2000), the exception for a company's URL is based on two no-action letters: Baltimore Gas & Electric Co. (available January 6, 1997) and ITT Corporation (available December 6, 1996). Trivia note - the first company that included its own URL in a prospectus was E*Trade in its 1996 IPO.

It's a fact and circumstances determination - it can include removing a ">href" tag from the URL and by disclosing that the URL is an inactive textual reference only.

The SEC distinguished between active and inactive URLs (for the SEC's URL and a company's URL) because it feared that investors may rely on actively linked content that likely has not been scrubbed as much as content that is normally used to make an offer.

"Inactivating" a URL means that clicking on the URL doesn't take a visitor anywhere - in other words, it looks like a link; but it's not.

Source: The SEC discussed inactivation methods in footnote 41 of Release 33-7856 (May 4, 2000).

Probably - but the SEC's guidance on this issue is somewhat unclear.

However, the SEC probably would treat active and inactive links the same - since it distinguished these types of links only in the narrow context of the SEC's URL and company's own URL. From that position, the logical extension is that if the SEC meant to distinguish active and inactive links in other contexts, it would have done so when it addressed this issue in those narrow contexts. See more @ inactive link use for the SEC's URL and a company's URL.

Source: The SEC's discussion of URLs is somewhat unclear in footnote 41 and accompanying text of Release 33-7856 (May 4, 2000).

Rarely - probably due to the risk of liability for content that they cannot control, as well as possible filing and delivery obligations for the third party content. See more @ challenges of filing third party content.

In addition, most companies do not file their SEC documents using HTML (as they are allowed; but not required) - they principally still use ASCII (pronounced "as-key"). Quite a few companies that provide access to their SEC documents from their IR Web pages just link to their ASCII documents on EDGAR (and ASCII cannot accommodate links).

No. A single comprehensive, integrated document must be filed - or traditional incorporation by reference methods must be used.

Note that a company can voluntarily link to other content - including its quarterly and annual reports - but it still must include the required disclosure within the body of the filed document (or use traditional incorporation by reference methods). In other words, a company is allowed to provide "duplicate" disclosure through links.

Source: The SEC clarified that links are not a substitute for incorporation by reference in Section I(f) of Release 33-7855 (April 24, 2000) and footnote 42 of Release 33-7856 (May 4, 2000).

It's quite difficult. Even though the SEC requires companies to file linked content from their online SEC documents, the challenge is EDGAR's system limitation - it's not yet capable of accepting links outside of a company's own SEC reporting stream.

Instead, a company has to file a script of the third party content (and take liability for the content) - as well as file a consent from the third party, if applicable. See more @ consents for third party content.

As a practical matter, there are several gray areas, such as which content should be filed if the third party content changes daily? And does content beyond the directly linked content need to be filed? See more @ links within links.

Note that linked content cannot be used to satisfy the company's SEC's disclosure requirements - it would just be permissible duplicative disclosure. See more @ ability to use linked content to satisfy disclosure obligations.

Source: Rule 105 of Regulation S-T addresses the liability for content linked from a filed document (after the Rule was amended in Section II of Release 33-7855 (April 24, 2000)). In addition, Example 6 of Release 33-7856 (May 4, 2000) illustrates some of the outstanding issues with linking to third party content.

Whenever content is linked because the company believes that such content is valuable as the report or opinion of an expert or counsel - even if only a quote or summary of a report or opinion is linked.

Of course, most third-parties are not willing to provide a consent since they then have Section 11 liability for their content (even though they are not raising capital or making a required disclosure for themselves).

Source: Example 6 of Release 33-7856 (May 4, 2000) emphasizes the need to file third party consents under Rule 436(a) in certain circumstances. Rule 437 allows a company to apply to the SEC staff to not require a consent, but the company must provide an affidavit that obtaining the consent is impractical or involves undue hardship - and the staff rarely grants such applications.

Yes - the EDGAR database on the SEC's Web site is in the public domain and companies can link to their documents on the SEC's site.

If a company links from its Web site to its documents on the SEC's Web site, it should still use disclaimers relating to third party content - since what happens to the SEC's Web site is out of a company's control (e.g. hacking risks). See more @ liability for linked content.

In addition, investors likely will find it difficult to read any SEC documents filed in ASCII on the SEC's Web site - this is not a sound investor relations practice.

To a large extent. Companies can link from a document filed on EDGAR to other filings (including exhibits) that it has filed on EDGAR that are in HTML format.

At this time, not many companies have filed documents using HTML - so not many companies can take advantage of the ability to link to previously filed documents.

Links should be to the first page of a document, not particular sections within a document. See more @ deep links.

Source: Section I(f) of Release 33-7855 (April 24, 2000) addresses the use of links within a document and Example 7 of Release 33-7856 (May 4, 2000) illustrates that the SEC is not concerned about linking within a document. There is no formal SEC guidance that the links must be to the front page of a document - just informal oral staff guidance provided at a conference.

Probably. The SEC's guidance is somewhat unclear for inactive URLs - but it's likely that they cannot be used in a SEC document, unless the company is willing to treat the linked content as part of the SEC document.

Note that there is an exception for the SEC's URL and a company's URL in certain circumstances. A company can include either its URL or the SEC's URL in a SEC document and not have the linked content considered as part of the SEC document if the URL is inactive (and for company URLs, and there is disclosure next to the URL stating "Our SEC filings are also available to the public from our Web site" near the URL). See more @ including URLs in SEC documents.

The burden is on a company not to "activate" its URL or the SEC's URL. This can be difficult since many word processing programs automatically activate URLs - either at the time the document is created, saved or converted to HTML.

If a URL is activated, it's automatically treated as part of a SEC document and the company has filing and liability obligations. See more @ what is an "inactive" link.

Source: The SEC distinguished active from inactive URLs in footnote 41 of Release 33-7856 (May 4, 2000).

No - incorporation by reference still only can be accomplished by listing the documents that a company wants to incorporate by reference in its SEC document. Companies cannot use links to effectuate incorporation by reference.

Note that the SEC basically adopts an "incorporation by reference" type of theory for link liability - but does not adopt such a theory for incorporation by reference itself.

Source: The SEC notes that its incorporation by reference framework remains the same in footnote 42 of Release 33-7856 (May 4, 2000). The SEC's incorporation by reference regulations include Item 12(a) of Part I of Form S-3, General Instruction G(4) of Form 10-K and Rule 12b-23(b).

Links are an integral part of the Web, so it's not realistic for counsel to recommend that a company not use them on their Web sites at all - but since there are many circumstances in which links can create liability, counsel should try to participate when a company develops a Web site. See more @ counsel's role in developing a corporate Web site.

Counsel should evaluate whether proposed content and third party links can create unreasonable liability risk and whether the risk can be reduced with Web disclaimers or other methods - or whether there are circumstances under which there should not be links to third party content at all, particularly during an offering. See more @ links during an offering.

Source: In Example 15 of Release 33-7233 (October 6, 1995), the SEC noted that links from a prospectus to an analyst report should be prohibited during an offering.

Probably more conservatively than on other pages in its Web site - since investors are more likely to be influenced by the content on the IR Web page. See more @ IR Web pages.

Links to third party content may result in liability under the SEC's link liability framework, particularly during an offering. See more @ the SEC's link liability framework.

If a company does link to third party content, it should disclaim responsibility for the content - as well as regularly review the content to ensure it's reliable and not editorial or opinionated (particularly if the content is upbeat about the company's prospects). See more @ disclaimers.

The disclaimer should make it clear that the company is not responsible for secondarily linked content - and that the company's safe harbor disclaimer covers the linked content (and the company should tailor its safe harbor disclaimer to address any forward-looking information that is linked).

Some commentators believe that IR Web pages should be designated as an area where a company has securities law liability for its content - and that other Web pages should be presumed not to contain offering material.See more @ IR Web pages.

Source: In some cases, third party links should be avoided altogether. For example, in Example 15 of Release 33-7233 (October 6, 1995), the SEC noted that links to analyst reports during an offering could be problematic. The Bond Market Association suggested that the SEC allow companies to create IR Web cul de sacs to designate offering material in its June 21, 2000 comment letter on Release 33-7856 (May 4, 2000).

Although a company controls this content, it still must be careful that it does not inadvertently bolster an argument that marketing materials for a company's products or services are considered offering or soliciting materials.

Although the envelope theory is not applied in making this "offer" or "solicitation" determination, it's a facts and circumstances determination as to whether such materials are provided in the ordinary-course - and since the IR Web page is more likely to attract investors, any linked content from this page probably will be evaluated with the benefit of hindsight by the SEC or the courts.

It's problematic if links to product and service marketing materials are established for the first time just before an offering or proxy solicitation commences - the SEC considers this gun-jumping. See more @ gunjumping due to Web site content.

If the investor relations or legal department is not able to pre-clear all content on a company's Web site before its posted, the company probably should not link from an investor relations Web page to marketing materials - or at least, regularly monitor the content and remove links to any content that may condition how an investor would view the company. See more @ IR Web pages.

Source: If any linked content is considered offering or soliciting materials, a company has filing, delivery and heightened securities law liability for the content under Section II.B.2 of Release 33-7586 (May 4, 2000). Offering materials posted before a registration statement is effective are required to be filed as part of the Section 10 prospectus in a registration statement - since they are considered "writings." See more @ "writings" during the waiting period. Under Rule 14a-6(b), proxy soliciting material has to be filed with the SEC before or on the date the material is first sent to stockholders.

There are numerous risks if a company links to analyst reports, including:

• A company probably has a duty to remove links to analyst reports once it contemplates an offering since its arguably gun-jumping before filing a registration statement and conditioning the market after the filing.
  
  
• A link from a prospectus to an analyst report incorporates by reference the content of the analyst report into the prospectus, so a company must file and deliver the report as well as be responsible for its accuracy.
  
  
• By linking to an analyst report, a company may be deemed to post-publication adopt the report.
  
  
• If a company decides to link to an analyst report, it probably should link to all known analyst reports - or risk being liable for selective linking, particularly if it just links to favorable reports.
  
  
• A company may be liable if it links to an analyst report that has content that it knows or reasonably should know is misleading.
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See more @ risks of links to analyst reports.

When a Web page is divided into multiple separate windows on a screen and each window operates independently of the others - and displays content from another site within a constant on-screen border.

Although the content is from another site (i.e., the "framed" site), investors still are actually visiting the Web site whose URL was typed into the location bar (i.e., the "framing" site).

The framed content still contains all of the elements it has on the framed Web site, including text, graphics and links - but the framing site controls how the framed content is displayed.

Frames arguably enhance a Web site's functionality. It benefits the framer because it increases the likelihood that an investor will continue to visit the framing Web site as well as retain its own logo and advertising - even though the content is imported.

Frames arguably benefit investors since it allows them to have access to more content from one Web site. See more @ do companies frame content on their IR Web pages.

Because investors easily can be confused over the ownership of framed content - since they likely will not recognize that the content is framed (the principal way to recognize the content is framed is by noticing that the URL in the location bar belongs to the framing site, not the framed site).

Even if an investor is aware that the content is framed, the viewer may assume that the two sites are affiliated - and then assume that the framer has approved of the framed content. Another troubling aspect of framing is that content can be framed without the framing party's knowledge or consent. See more @ legal actions brought against framing.

The SEC has noted that the risk of investor confusion is higher when third party content is framed - making it more likely that a company is deemed to adopt the linked content under the SEC's link liability framework. See more @ can a company be liable if it frames misleading third party content.

Source: The SEC's statement about framed links is in footnotes 59-60 and accompanying text of Release 33-7856 (May 4, 2000).

The few reported legal actions brought based on framing practices have been in the intellectual property area.

In February 1997, six online media publishers brought the first lawsuit challenging framing against a Web site called TotalNEWS. TotalNEWS had framed content from these popular online media sources but used its own logo and banner advertisements. Believing that advertising revenue would be lost to the framer, the content providers sued alleging trademark infringement and other violations. The parties settled the case so that TotalNEWS would no longer frame the content of the 6 publishers.

Source: The settlement relates to Washington Post Co. v. Total News, Inc., No. 97 Civ. 1190 (S.D.N.Y. filed February 28, 1997).

It's unclear. There is scarce caselaw - but there is SEC guidance. The SEC has warned that the risk of investor confusion is higher when third party content is framed - making it more likely that a company is deemed to adopt the linked content under the SEC's link framework.

In court, it's possible that this issue may turn on whether the applicable securities law liability provision has a state of mind element. In most fraud cases, the state of mind element is scienter - plaintiffs must show that the defendants acted intentionally or with highly reckless behavior (depending on the law of the applicable jurisdiction). If a company knowingly or recklessly frames misleading content, it could be liable.

A scienter-based claim could raise the following issues: For the framer to be liable, would the framer need to know or only be reckless in not knowing that the framed content was misleading? If reckless, how much due diligence does the framer need to conduct? How often must this due diligence be conducted? Does it matter whether the framer has some type of relationship with the framee?

It's unknown - but it's fairly unlikely that a company would have liability because its content was framed, particularly if the company did not know that someone framed its content.

There are some relatively gray issues: For the framee to be liable, would the framee, who knows or is reckless in not knowing that the framed content is misleading, need to know that its content was used in a purchase or sale of securities? Or is any misleading content posted by the framee subject to anti-fraud claims, even if the framee has no known relation to any securities trades?

Of course, a company may incur liability just for having misleading content on its own site, regardless if the content is framed or not.

Although many companies use frames on their Web sites, it's quite rare for companies to use frames on their IR Web pages or in offering materials. See more @ risks of framing third party content.

Brokers have to be wary of how they use links on their Web sites during offerings of their corporate clients - particularly links on Web pages that contain content related to an offering or research about a company that is conducting an offering. See more @ links related to online public offerings.

If an offering is not involved, the NASDR will not hold a broker responsible for links to third party content - if the links are "ongoing" or are for educational purposes. If a broker has any reason to know that a linked site contains false or misleading content, the NASDR will hold it responsible for that content.

A link is considered "ongoing" if:

• the link is continuously available
• a broker doesn't have the ability to change or direct the third party content
• investors can access the third party content even if its unfavorable to the broker
• 
  
  

There still are open issues - including whether a broker has an obligation to monitor the third party content or to what extent does it need to conduct due diligence to ensure that someone in its firm does not have a reason to know that the site contains false or misleading content.

Interestingly, some commentators believe that the SEC should build on the NASDR's link liability framework to create more concrete link guidelines. See more @ criticism of the SEC's positions on links.

Source: The NASDR's third party link guidance is in a NASDR letter from Thomas Selman of the NASDR to the Investment Company Institute (November 11, 1997). NASDR Rule 2210 regulates the content of any broker communication to the public - the communication can't be misleading and must follow the principles of fair dealing and good faith. The Committee on Federal Regulation of Securities of the Business Law Section of the ABA believes the SEC should build on the NASDR's link guidance as noted in its August 2, 2000 comment letter on Release 33-7856 (May 4, 2000). An excellent article describing the NASDR's link positions is Martin Byrne and Alice Pellegrino "Hyperlinks under the Securities Laws," wallstreetlawyer.com (October 2000).

What do critics of the SEC's positions on links say?

Many critics believe that the SEC should clarify that companies that adopt linked third party content should only be responsible for the content directly linked - since liability for secondarily linked content is not reasonable or practical. See more @ what is "secondarily linked content."

Some critics believe that the SEC should adopt a less subjective test, such as a bright line test or presume that a company is not responsible for linked content if it uses a disclaimer - rather than the SEC's existing facts and circumstances test which is criticized as too generic. Some critics go further and believe that the use of an exit notice should conclusively relieve a party for any liability for linked third party content.

Some critics believe that the SEC should adopt a framework that is more similar to the NASDR's positions. See more @ the ability of brokers to use links.

Source: The Bond Market Association's June 21, 2000 and the Committee on Federal Regulation of Securities of the Business Law Section of the ABA August 2, 2000 comment letters on Release 33-7856 (May 4, 2000) raised these issues.