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October 01, 2009

Working Smart

It’s a Jungle Out There Part 1

by Trey Cox, Eric Pinker and Chris Schwegmann

Working Smart

Protecting Your Name on the Internet

Are you protected?
Do you know what dangers lurk on the Internet jungle?

Direct sellers face unique challenges because their salesforces operate outside the controlled office environment and often on the Internet. These challenges include the use of unauthorized distribution channels, such as eBay; employing inaccurate marketing material; and using your intellectual property without permission. Unchecked, these challenges become significant business risks, diluting your brand and creating turmoil within your independent salesforce. The unauthorized use of your intellectual property, as well as unauthorized Internet sales, damages your reputation, erodes the value of your trademarks and, most important, exposes your company to liability. The Internet is a jungle, and this article explains how to protect your company’s brand in the wilds of the Web.

Most direct sellers copyright their advertising materials, recruitment aids and other marketing collateral. Many even include language in their independent contractor agreements that restricts the unauthorized use of their intellectual property. Others include language prohibiting their salesforce from selling their products via non-sponsored Web sites and auction sites, like eBay.

These are important first steps, but they’re not enough to safeguard your brand and intellectual property from unauthorized dealers, rogue salesforce members and unscrupulous individuals seeking to exploit your good name for their profit. The Internet poses a whole-new set of challenges, requiring vigilant monitoring for violations of your distribution agreements and the unauthorized use of your intellectual property. Here are some of the most common problems facing direct selling companies:

Problem No. 1: Infringement of Your Intellectual Property

Anyone armed with a mouse and a word processor can use the “copy” and “paste” functions to copy your marketing materials and copyrighted photographs. A few quick revisions, and your hard work becomes a weapon to steal your sales and customers. These unethical vendors prey on confused consumers.

They use your marketing materials to pass themselves and their products off as yours at much lower prices. In the process, you lose sales. Those lost sales demoralize your distribution network and anger your consumers after they discover they purchased inferior, defective or expired products. Both federal and state law prohibits the use of your copyrighted sales materials by a competitor. The law also restricts competitors from passing off your products as their own. In both cases, however, you must identify and aggressively police such behavior on the Internet to prevent its occurrence.

Problem No. 2: Siphoning Sales by the Use of Metatags and Keywords

Worse yet, some of these same unauthorized dealers leverage your brand, trademarks and reputation to steal your consumers. Consumers routinely use a major Internet search engine, like Google, Yahoo or MSN, to find your Web site among the millions on the Internet. Manipulative Web site designers add metatags or buy keywords to focus search engines to their sites and away from yours. While metatags and keywords were created to make the Internet run more smoothly, some dishonest competitors now use them to hijack your company’s name and trademarks. In such cases, your competitor’s Web site may show up higher on the search results than your own, or they may appear as a “sponsored link,” even when the consumer attempted to reach you.

Fortunately, both federal and state law prevents this type of unfair competition.

Your competitors cannot use your trademarks or claim “affiliation” in a manner that is likely to confuse consumers. Using your trade name and trademarks to divert Internet traffic causes confusion and gives rise to liability under federal and state law. This is true when these dealers attempt to “disclaim” association, and even when no sales result from their illegal behavior. The reason is simple: Potential customers surfing the Internet may be diverted to your competitor’s Web site, never returning to yours.

Problem No. 3: “Liquidators” and Auction Web sites

“Discount liquidators” sell old, expired or discontinued products, often obtained by enticing salesforce members to breach their contractual agreements. Liquidators then sell your products en masse on various auction Web sites, like eBay, again at big discounts and without any warranty. This tarnishes your brand, demoralizes your salesforce and exposes you to liability. The unauthorized products sold on eBay may be expired or used, and may have been put on the market by disgruntled distributors wanting to unload product in violation of their contractual agreements. In all cases, unauthorized sales confuse consumers and demoralize your salesforce. eBay and most other auction Web sites offer programs to help companies police intellectual property violations on the auction sites. These programs are a good first step, but without a comprehensive follow-up strategy, you can become mired in a never-ending game of “whack-a-mole.” Furthermore, the auction site assistance programs will not halt the activity, protect your name and satisfy your salesforce. Fortunately, both federal and state law arms you with the weapons that will. Doing nothing to stop unauthorized Internet sales is not an option. You must protect your brand.

Problem No. 4: Inaccurate & Misleading Claims about Your Products & Services

Direct sellers must police the Internet for improper and unauthorized statements made by overzealous salesforce members. With thousands of independent sales associates, some are bound to go too far, resulting in marketing material that is at best unapproved, and at worst fraudulent. Although most salesforce members are independent contractors, both federal and state law holds direct sellers liable for false or misleading representations made by salesforce members. If unabated, such statements can expose direct sellers to attorney general investigations, fines and other more serious penalties.

Problem No. 5: Bloggers

You can’t make everybody happy all the time. Whether it is a dissatisfied customer, unhappy salesforce member or disgruntled former employee, Internet blogs have given rise to an unprecedented ability to broadcast any complaint—no matter how petty—directly to the masses. Whether the words bloggers write are ever read or given any credence remains uncertain, but one thing is certain: Their words are out there for everyone to read at any time. As a result, you must crawl the Web daily to monitor what is being said about you—the good and, more important, the bad.

Comprehensive Plan of Attack

Your intellectual property, brand and reputation are your most valuable assets, second only to your relationship with your salesforce and your distribution network. Direct sellers must implement best practices to protect their trademarks, intellectual property and reputation from erosion on the Internet. You need a brand-protection game plan, and aggressively execute it to protect your valuable assets on the Internet.

As Benjamin Franklin said, “Glass, china and reputation are easily cracked, and never well-mended.”

In an upcoming article, we’ll walk you through courses of action you can take when faced with a wild situation on the Internet jungle. You have rights! The steps are simple, and when followed, you will see results.

 Eric PinkerTrey CoxChris Schwagmann

Eric Pinker, Trey Cox and Chris Schwegmann are partners with Lynn Tillotson Pinker & Cox, LLP. For more information, visit