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Database ConfidentialityTo what degree can a name, address or phone number be kept confidential? While a company has a direct contractualrelationship with each of its distributors, the distributors within the organization are connected to one another only in their company’s database. Serious confidentiality issues may arise when personal contact information is made available to everyone within an organization. Uplines and downlines often share a personal connection but that’s where the connection usually stops. A person is recruited into an income opportunity personally by a sponsor who introduces her to the opportunity and, in return for bonuses paid by the company, helps the recruit get her business going. Most often a relationship existed prior to the recruit joining the income opportunity, just as some form of relationship continues if that person chooses not to join and remains then in the prospective sponsor’s “little black book.” As we go beyond the personal relationship—and as a direct result of being a representative—names and addresses, other than of one’s immediate upline and downlines, become known to representatives through company documents and company provided Internet access. One can say that, “But for being a representative, this information would not be known to me.” This information belongs to the company, and the company may require that this information be given confidential treatment. Names, addresses and phones numbers of distributors are confidential and proprietary to the company and the use by a representative should be limited to business purposes to further the company’s income opportunities and sales objectives. Distribution of genealogies and mailing lists containing names and addresses of distributors should be restricted to authorized recipients. Personal contact information should only pass from one representative to another as necessary for the specific business purpose of furthering the interests of the company. A company’s legal counsel usually recommends that terms and conditions be spelled out for the use of confidential information. In addition, companies should consider placing a confidentiality notice on their genealogies or lists, alerting representative of the company’s proprietary rights to the information. Courts need an education regarding the confidentiality and misuse of contact information within MLM organizations. When the issue is as complex as “cross group sponsoring,” it is often a steep learning curve. Judges do not know what cross group sponsoring is and, even when carefully explained, may still view it as a restraint of trade not sufficiently “reasonable,” in their view, to pass muster. A much easier case can be made for theft, conversion or misuse of confidential information, because these principles often come up in general business litigation and are known to the courts. A company’s customer list is generally deemed by the courts as an important asset that can be legally protected. In almost all MLM structures, the distributors are the company’s primary customers. By taking steps to treat their names and addresses as proprietary and confidential, a company is laying the groundwork for a strong legal argument. Note that the argument by a dismissed distributor that “I have a right to make a living” may be countered by, “Yes, you do, but not with the company’s confidential and proprietary information, in your possession solely for the furtherance of this company’s business purposes.” The recommendations are simple to implement. The company’s general counsel or MLM specialist counsel can advise on effective language and technique that are not so controversial as to be resisted by the field. Gerald P. Nehra is a private practice Attorney at Law. He is one of only a few attorneys nationwide whose practice is devoted exclusively to direct selling and multilevel marketing legal issues. He began his legal career in 1970, and from 1982 to 1991 he was the Director of the Amway Corporation Legal Division. He can be reached at Nehra & Waak, Attorneys at Law, 1710 Beach Street, Muskegon, Michigan 49441, 231-755-3800. His e-mail address is GNehra@mlmatty.com. You are invited to visit his web site at www.mlmatty.com. Permission to reproduce, with this attribution included, is granted. The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation. |
