- Sharir, Shiv & Co. Law Offices - https://www.sask.co.il -

Newsletter 48 – November 15 2013

THE LEGAL NEWSLETTER

We are pleased to present another English-language edition of our firm newsletter.  In this edition we provide a brief synopsis of recent court decisions regarding the use of a person’s name without consent as a keyword in connection with sponsored advertisements and the application of the Business Judgment Rule and the meaning of Inside Information in a potential takeover context.

The newsletter, which our firm publishes periodically, addresses important practical developments in the field of Israeli corporate and commercial law.  The objective of the newsletter is to create awareness of these developments and of the underlying principles of the issues discussed.  We hope that you will find the newsletter informative and helpful.  Any comments or suggestions are appreciated.  If you need further information or have any questions concerning the issues discussed in this newsletter, please contact either Yoram Shiv, 972-3-607-4777, yoram@sask.co.il, or Alex Berman, 972-3-607-4777, alex@sask.co.il.

Sharir, Shiv & Co., Law Offices

District Court / Using a person’s name without consent as a keyword in connection with sponsored advertisements is not a breach of privacy

The District Court held that using a well-known doctor’s name as a keyword in sponsored advertising does not constitute a breach of the doctor’s privacy.

A plastic surgery company marketed itself through Google AdWords using the name of a well-known plastic surgeon as a keyword. Upon a person typing the doctor’s name as a search query in the Google search engine, the company’s advertisement for its services would appear as a sponsored advertisement. The company’s advertisement did not mention the doctor’s name or any other information related to the doctor. The plastic surgeon did not consent to the use of his name as a keyword.

The District Court examined whether the Google search results might lead the average person to assume a connection between the plastic surgery company and the plastic surgeon whose name was used as a keyword. The Court held that based on the facts of the case – that the advertisement did not contain the plastic surgeon’s name or any other information related to him and that the Google AdWords sponsored advertisements were clearly differentiated from non-sponsored search results – the sponsored advertising was not misleading.

The Court further held that when a person’s name becomes a trade name, as in the present case, the use of that person’s name as a keyword in itself does not constitute a breach of Israel’s privacy laws.

District Court / Commercial Division / Application of the Business Judgment Rule and the meaning of Inside Information

A company acquired 20% of the share capital of another company in stages, over a period of time. A shareholder of the target company objected, alleging that the purchases were staggered in order to avoid requirements to disclose the acquiring company’s intention to ultimately purchase 20% of the target company’s share capital and to influence company management. The shareholder alleged that the intention to achieve control or influence was “inside information” of the target company, being material information that could affect the value of the target company’s shares.

The shareholder turned to the target company’s Board of Directors, demanding that they sue the acquiring company to disgorge its profit from the acquisition on the ground that the profit was achieved through use of inside information. Following the Board of Director’s refusal, the shareholder requested that the Court approve the filing of a derivative claim, alleging that the Board of Directors’ refusal was due to a conflict of interest.

The Court held that, notwithstanding that it has not been formally adopted into legislation or by Supreme Court caselaw, the Business Judgment Rule applies in Israel.  The general rule is that when a company reaches an informed decision attributed to a legitimate business interest, based on the consideration of appropriate information and the exercise of proper discretion, and all in good faith and without a conflict of interest, the Court will not interfere with the decision. The Court held that the Business Judgment Rule applies to decisions regarding initiating lawsuits.

In examining the reasonableness of the Board of Directors’ decision, the Court considered the evidence that showed that the Board of Directors’ decision was made after thoroughly considering the appropriate facts in good faith and without a conflict of interest. The Board of Directors’ conclusion that it was in the company’s best interests not to create a conflict with the acquiring company was an exercise of proper discretion and consistent with the requirement that the Board of Directors act for the good of the company.

The Court rejected the claim that the acquiring company’s knowledge of its own intention to purchase additional shares of the target company was “inside information” of the target company.  The Court explained that “inside information” is information about a company that originates from that same company and not any information that a third party may have that may impact the target company.  That non-public information, such as the intention of a third party to purchase shares of a target company, may affect the share price of the target company does not make such information “inside information”.  Supporting this position is that damage claims for the use of inside information are intended to compensate the target company for the use of the target company’s proprietary information.  This rationale is not applicable in the case of information not belonging to the targeted company.

Furthermore, the acquiring company based its decision to purchase the shares of the target company after the acquiring company’s analysis of publically available information led it to conclude that the target company shares were undervalued.  The Court noted that the acquirer’s attempt to take control of the target company was in the interests of all shareholders and that courts should not set rules that would discourage takeover activity.  The Court noted that the acquisition of material positions in a target company will motivate the acquiring entity to ensure the proper management and supervision of the target company and will serve to the advantage of all shareholders. Notwithstanding the benefits enjoyed by all shareholders, the costs of this management and supervision are borne by the acquiring shareholder. To encourage this beneficial activity, an acquirer should be allowed to profit from any premium derived from the mere fact that it is purchasing shares in a target company and there should not be an obligation imposed on acquirers to disclose initial intentions to purchase.

This newsletter provides general information and should not be used or taken as legal advice for specific situations, which depends on the evaluation of precise factual circumstances.