Friday, August 29, 2008

Social Media, the Law, and the Court of Public Opinion

Which is more important? The law or public opinion?

In criminal matters, the answer is the former; but for civil matters--particularly for those of us who live in the world of brand perception and loyalty--the answer may be the latter.

Recently, Hasbro forced a game that was suspiciously similar to Scrabble off of Facebook. Scrabulous, developed by two Calcutta-based brothers, had become a bonafide hit, drawing 500,000 players a day and generating $25,000 per month of ad revenue. There was no question that Scrabulous ripped off Hasbro's Scrabble; the game was "a blatant copy of Scrabble--down to the rules, game pieces and board colors," said Adweek. So it would seem that Hasbro acted appropriately in this clear-cut case, right? Maybe yes, maybe no.

Over on Facebook the reaction has been severe, with 53,000 people joining a "Save Scrabulous" group and nearly 11,000 signing an online petition. The Scrabulous developers have offered a similar but (hopefully) non-infringing game called Wordscraper, which has about the same number of fans as (and substantially better ratings than) the official version of Scrabble now available on Facebook.

Hasbro had a perfect right to protect its copyright, but one has to wonder if there wasn't a better way. As noted by MediaPost, "it seems obvious that Scrabulous is the best thing to happen to Scrabble in decades," since many of the folks who played the online version "became so enamored of the game that they purchased the physical version."

Peter Fader, co-director of the Wharton Interactive Media Initiative, believes Hasbro's action is an "incredibly bad business decision." He notes that many companies sue "just because they think they have the right to, instead of pursuing what's in their shareholders' best interests." Fader suggests the gaming giant might have formed a partnership with the brothers or bought them out, which would have saved legal fees and yielded a flood of positive publicity. He adds, "Hasbro may have won the battle but it has surely lost the war."

Another risk in Hasbro's approach is that the company could actually lose the case. According to the Washington Post, while many lawyers think the look and feel of Scrabulous was sufficiently alike Scrabble's to justify the infringement suit, others point out that, "The idea of Scrabble -- the idea that you would get points for spelling words -- can't be copyrighted."

Even if you believe (as I do) that the bad publicity and hurt feelings of the 500,000 Scrabulous fans will blow over, this situation makes it apparent that both legal and brand reputation considerations must be weighed before unleashing the lawyers. Another more obvious example of the impact of Social Media on legal matters is the Wal-mart/Debbie Shank case.

Debbie was an employee of Wal-Mart when she suffered a horrible auto accident that left her brain damaged. According to CNN, "Shank and her husband, Jim, were awarded about $1 million in a lawsuit against the trucking company involved in the crash. After legal fees were paid, $417,000 was placed in a trust to pay for Debbie Shank's long-term care."

That's when Wal-Mart exercised the right contained in the health coverage fine print to recoup medical expenses if an employee collects damages in a lawsuit. The $230 billion organization sued the couple for $470,000. One can't help but cringe at Wal-Mart's actions when you read in the CNN article that Debbie Shank is unable to remember that her son was killed in Iraq; she often asks about him and when told her son is dead, Debbie weeps as if hearing the news for the first time.

It will come as no surprise that the reaction across blogs and forums was swift and unforgiving. The fact the company was legally correct was no match against the perceived callousness of the retailer's conduct. I'll leave the moral questions to others, but it is hard to imagine how Wal-Mart failed to foresee the risks; the company is so large, the Shanks so needy, and the sum so small that there was little upside and gargantuan risk in this approach.

Wal-Mart's deeds harmed its relations with many employees. Their Web site positions the company as a great place to work, promoting the "competitive pay and health benefits for you and your family." The company's desire to collect money from the Shanks rankled many employees, and one online petition protesting the Shank lawsuit was signed by 750 associates.

The blogosphere was, of course, brutal in its assessment of the situation. Thousands of blog posts appeared with titles such as Waiting on Wal-Mart to Do The Right Thing, Still Shop At Evil-mart Do You?, As if you needed another reason NOT to shop at WalMart, and Wal-Mart hits new low in hardheartedness.

In April, Wal-Mart caved into the pressure. In a letter to the Shanks, Executive Vice President Pat Curran said, "Occasionally, others help us step back and look at a situation in a different way. This is one of those times. We have all been moved by Ms. Shank's extraordinary situation."

It is reassuring to know Wal-Mart monitored and responded to the almost unanimous opinions of consumers. Of course, the organization might have saved considerable embarrassment, costs, and lost trust had they considered the Social Media ramifications of their actions in the first place. Brands must become cognizant that the law provides no refuge from public opinion when graceless legal actions are taken. In situations where anger and disappointment go viral, being legally right will not save brands from shame, damaged brand perception, costly PR crisis response, and reduced sales.

The growth of Social Media will increasingly require organizations to consider legal alternatives not just on their merits in law but also based on the potential reaction of millions of interconnected consumers.

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