Database Confidentiality

Appears in Network Marketing Business Journal, July 2012, Volume 27, Issue 7, on page 12

To what degree can a name, address, or phone number be kept confidential? While a company has a direct contractual relationship 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.

Immediate 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 representatives of the company’s proprietary rights to the information.

Courts need an education regarding the confidentiality and misuse of contact information within direct selling organizations with a multi-level form of compensation. 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 direct selling business models, 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 direct selling specialist counsel can advise on effective language and technique that are not so controversial as to be resisted by the field.

Leave a Comment