What’s Exceptionalism?

Eric Goldman points to a very interesting SEC policy document on linking liability. I’m going to respectfully disagree with his take on what the SEC is doing, but with gratitude that he flagged such an interesting issue.

Here’s the context. Under “Section 10(b),” the SEC has a mandate from Congress to beat up on companies that say false things—I believe “make material misstatements” is the term the kids these days are using—that affect their stock prices. Its recent policy document confirms its position that a company could run afoul of the SEC by linking to a third-party web site with false information on it. As the SEC explains, the key issue will often be whether the company “explicitly or implicitly endorsed or approved the information.” The document then gives several pages of guidance on when the SEC will consider a link to be an endorsement. The test is pretty much what you’d expect: is it a “reasonable inference” that the company is creating the link in order to signal approval of the contents of the site being linked to.

Eric claims this guidance is “exceptionalist,” by which he means it treats online media differently than offline. I disagree. In the first place, a hyperlink doesn’t correspond precisely to anything in the offline world, so of course the rule for hyperlinks can’t perfectly track the rule for offline media. Is it like a corporate officer handing a third-party document to a reporter? Like an officer telling members of the public to go look at a particular document?

The deeper problem with the exceptionalism argument here is that the SEC is actually trying to hew as closely as possible to its guidance for offline sources. It’s telling companies, don’t “approve” or “endorse” statements you’re not willing to stand behind, whether those statements are online or off. Since “approval” and “endorsement” are to be considered from the perspective of a reasonable observer, the hyperlink-specific parts of the guidance simply incorporate what the reasonable observer generally knows about hyperlinks. They point at things the creator thinks will be of interest; they can sometimes convey implicit messages; they don’t always do; context matters a lot; sometimes what you don’t link is as significant as what you do.

These aren’t “exceptionalist” analyses; indeed, it would be more exceptionalist if we ignored the social facts that reasonable observers know about hyperlinks. We don’t ignore the social facts that reasonable observers know about offline media (like magazine interviews, corporate reports, press releases, and conference calls

Thus, I’d be interested in hearing Eric’s take on what a “nonexceptionalist” analysis of Section 10(b) hyperlink liability would look like. I doubt there can be any such animal.