CONFIDENTIALITY OF NAMES AND ADDRESSES

by Gerald P. Nehra
Attorney-at-Law

What degree of confidentiality can be placed on a name, an address, or a phone number? Companies must remember that they have a direct relationship with every distributor. The uplines and downlines are not connected contractually, but only in the company's computer. One level of connection in the field is definitely personal, but usually it stops there. People are recruited into an income opportunity PERSONALLY. They have a sponsor who introduces the opportunity to them, and the sponsor, in return for the bonuses that are based on the sponsored person's volume, helps the new person get their business going. Most often a relationship of some kind existed between the two people before the sponsored person joined the income opportunity, just as some form of relationship would continue if the person chose not to join, but remained 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 frontlines, become known to representatives through company documents. 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.

Such names, addresses, and phones numbers of distributors are CONFIDENTIAL AND PROPRIETARY TO THE COMPANY, and the use by a representative may be limited to business purposes in furtherance of the company's income opportunity and sales objectives. Distribution should be restricted. Genealogies, mailing lists, and names and addresses of distributors should only go to and from authorized recipients, and only to further the income opportunity and sales objectives. This information should only pass from one distributor to another, if the recipient has a need to know, and again for the specific business purpose of furthering the interests of the company.

Companies are recommended, through their counsel, to have terms and conditions spelling out the confidential nature of the information. Also, companies should consider a confidential legend on the genealogies or lists, putting everyone on additional notice of the company's proprietary rights in the information.

Courts need an education, and it often is a steep learning curve, when the issue is as complex as "cross group sponsoring." They do not know what it 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 of, or conversion of, or misuse of confidential information, because these principles come up often 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, which can be legally protected. In almost all MLM structures, the distributors are the company's primary customers, purchasing for personal use, and for resale. By taking steps to treat their names and addresses as proprietary and confidential, a company is laying the groundwork for a strong legal argument, if such becomes necessary. Note that the emotional argument of a dismissed distributor that "I have a right to make a living" is significantly diffused by the counter- argument that "Yes, you do, but not with MY confidential and proprietary information, in your possession SOLELY for the furtherance of MY business purpose."

The recommendations are simple to implement, and either the company's General Counsel, or the company's MLM Specialist Counsel can advise on language and technique. Also, they are not so controversial as to be resisted by the field.

Gerald P. Nehra is an MLM Specialist Private Practice Attorney. He is one of only a few attorneys nationwide whose practice is devoted exclusively to direct selling and multi-level marketing issues. His 25 years of legal experience includes 9 years at Amway Corporation where he was Director of the Legal Division. He can be reached at 1710 Beach Street, Muskegon, MI 49441, 616-755-3800, 616-755-4700 FAX. Credentials and Billing Information are available through Fax-on-Demand at 803-548-3299, ext. 3088, and E-Mail Auto Responder at MLMAtty@memo.net. His E-Mail Address is MLMAtty@aol.com

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