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Search Marketing Non Disclosure Contracts: Jerk Insurance or Crooked Pool?

scalesAnyone who has done serious business as an employee, employer, vendor, or contractor has had to deal with non-disclosure agreements (NDA) at one time or another. They’re as standard in business as darts in a pool hall. However this can be a tricky topic for incoming employees or contractors who suspect they’re somehow being unreasonably limited or ripped off. For the search marketing employer, no matter how well an employee candidate or potential contractor is vetted, each new hire holds risk that someday that person will try to cause harm or seek unreasonable personal gain with inside information.

In search marketing traditional boilerplate NDA language opens an interesting can of worms because SEM “territories” are truly global and social network relationships can be valuable assets. In this post we’ll explore some basic elements of NDA agreements, discuss how standard concepts might apply to SEM firms, and question whether typical non disclosure requirements are fair to search marketing employers and those they hire.

Confidential Information Defined

Non disclosure agreements often list the specifics of “protected” confidential information as the NDA classic setup. There are a couple of important concepts here for search marketing employees and contractors as the definition of confidential information is spelled out. Sometimes information pertaining to “affiliated” companies is included in the deal. Traditionally unless “affiliated” is clarified further, it is reasonably assumed to mean entities in which the employer holds some element of joint ownership and/or control.

However our SEM NDAs also restrict revealing our agencies unique combination of SEM software and the relationships we have in social networks “including but not limited to blogging strategies, strategic partner-identities, social media profiles, suite of search marketing software tools, and agency business models.”

Customer lists are often specifically protected in as truly proprietary information (more about that later). Fairness Questions: Are any aspects of an SEM company’s day to day operation truly confidential? Should employees be allowed to go from employer to employer using the trade secrets at each new place of employment? How should social media relationships be protected?

The key here is the question: “what does proprietary mean?” For instance if the receptionist wears a striped shirt to work once a week-that does not rate as proprietary because information is easily discoverable to third parties outside the work environment. The word “proprietary” is usually held to indicate that the employer exercises private control, ownership, or use over an item of property (including intellectual) usually to the exclusion of other parties.

Though it may be a challenge getting a judge to agree, I would contend that aimClear’s private master network-list of bloggers we contact for diggs, spins, and StumbleUpon reviews is proprietary and should be protected. Fairness Questions: Should contractors be allowed to reveal the SEM shop’s list of bloggers turned-to for Diggs, Stumbles, or links? Should hundreds of research hours spent assembling house SEO tools be revealed to other SEM shops? Is any information in an SEM shop truly proprietary?

Keeping Secrets

The key clause of any NDA is where the signee can’t disclose proprietary information to any firm person, association, corporation, or other anybody else ever for any reason-or they can get in trouble. This means the employee or contractor can never reveal confidential information for any reason so long as the employer can prove that the information is still truly proprietary. It’s generally assumed the exception to “for any reason” is if the contractor is subpoenaed.

In the case where the employee is being sworn into a deposition the safe route is for the (former) employee or contractor to contact the (former) employer to apprise them of the upcoming deposition. The former employer may respond by bringing a motion for a restraining order or injunction to protect trade secrets. This could serve the purpose of insulating the (former) contractor from potential liability for revealing trade secrets. Fairness Question: Should confidential information be protected at all?

Teeth

NDAs usually spell out remedies available in case of any violation. Often is if there is a breach (and in some deals even a “threatened” breach), the company whose confidentiality was violated can get a preliminary restraining order and an injunction preventing the offending party from disclosing any part of the confidential Information and from providing any service to any company or person or company.

Sometimes the employee or contractor does not need to actually breach the proprietary information and agrees no the even threaten to do so. If threatening a breach entitles the employer to prevent the contractor from revealing trade secrets by restraining order, the employer better have his ducks in a row if the requested injunction is based on a perceived threat. The judge may or may not buy it. If granted the injunction can prevent the contractor from working for any person or company to which he has betrayed (or threatened to betray) protected information. Fairness Question: If a former vendor breaches confidentiality, should they be protected from working for the person or company the information was inappropriately revealed to? Is “threatening” to reveal protected information as bad as actually doing it?

Proving Damages

In addition to preventing the offending party from working for or with any third party where disclosure has occurred or may have occurred, NDAs usually provide the employer the ability to seek damages. Damages have to reflect actual money lost and it must be proven. Proving an NDA violation is very different from proving damages and there logs of case law where the confidentiality violation was proved but damages could not be sufficiently documented. Some NDAs have “minimum liquated damages” clauses which pre-agree the financial penalty for each proven violation that occurs. Fairness Question: If there is a violation should the offended party have to prove that actual money was lost to be compensated for the damages? Are minimum liquidated damages reasonable?

“Territory” is a Sticky Wicket.

Before the Internet most NDAs focused on geographic territories to protect employers from disclosure of confidential information. This concept stems businesses where sales people actually have physical territories. These days the Internet has blurred those lines and it is becoming less common for NDAs for Internet related businesses to be about geographic. Client lists and time-periods are much more common.

Is all Fair in Love and Business?

Non disclosure agreements are common and arguably necessary to protect businesses that, after all, invest cash facilitating the career growth of those they hire. Of course NDA are negotiable and subject to what the market will bear. For instance a more experienced incoming hire may already be connected with an SEM agencies clients, blogger network, and tools. We hope this post stimulates dialog and debate regarding how this classic business mechanism applies to search marketing.

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7 Comments

  1. Todd Mintz on September 10, 2007 at 7:54 pm

    I think you’d have a hard time getting a court to enforce a non-compete involving asking for Digg’s or Stumbles (assuming you’d get a court to understand the concept).

    We’re all public people to some level and you can’t NDA relationships and the low-level of favors that spring from such relationships.

    Now, if someone were to publish your master list on the web…that would likely be a violation…but so long as that doesn’t happen, all the former employee would be taking from you is a “relationship” that might have been developed while being employed with you but isn’t necessarily tied to it.

  2. Marty Weintraub on September 10, 2007 at 7:58 pm

    Thanks, That’s why I’m asking the question. I appreciate your insight Todd.

    I think the dividing line of master list publication is a reasonable concept. If someone I work with introduces me to a business connection in the line of duty and they become my friend-the contact and friendship belongs to me.

  3. Mike Marshall on September 10, 2007 at 8:35 pm

    Musician, SEO/SEM Guru, and… Lawyer – you are quite the renaissance man Marty!

    In my opinion, Employer/Employee NDA’s are an absolute necessity. A business will have a very tough time surviving if they spend their cash and resources training their future compeitition – competition with an inside knowledge of their company’s inner workings.

    I recently read a book by Jim McIngvale called “Always Think Big” in which he chronicled his transition from employee to business owner. His employer and mentor operated a furniture store in Dallas. Mac was the top salesman/salesmanager and had many contacts in the Dallas area. He could have easily set up shop where he was established, but he considered it unethical to use the training and investment that his mentor had given him to compete with and draw business from his former employer. He moved to Houston to start his business and maintained a mutually beneficial network with his former mentor.

    However, not every employee has these sorts of scuples. Without an NDA, an employer is vulnerable to a barage of destructive opportunism.

  4. Marty Weintraub on September 10, 2007 at 9:30 pm

    Thanks for the comment Mike. I am also a Jim McIngvale fan and I’m glad you raised the example. Thanks for taking the time to show us ClickPath offline conversion tracking @ SES SJ. It is an impressive system.

  5. Andy Beard on September 12, 2007 at 3:14 am

    There is certainly a difference between “prior actions” and “prior relationships”

    A lot of this isn’t really NDAs but anti-competitive contracts, and it is hard to enforce anti-competitive contracts for longer than you are paying someone.

    If we are talking top management, I feel it is essential to ensure that it is not in their financial best interests to reveal company proprietary information, and that may require some kind of long term financial incentive.

    In Poland you can’t place any restrictions on someone that would prevent them gaining fruitful employment, even in exactly the same or similar profession, thus things like social media relationships just couldn’t be preserved.
    At the same time, very specific information about a project can be preserved, thus a past employee would probably be restricted from revealing exactly how something was achieved, how money changed hands etc.
    However that wouldn’t prevent them suggesting using those very same tactics with a future employer, as it becomes knowledge and skill required to perform their professional trade.

    There is nothing like money – if a key employee leaves under good terms, continue paying them a bonus or royalties based upon their previous duties or sales – maybe not the full amount, but enough that they wouldn’t want to damage that relationship.

    I find the biggest danger is the reverse – employees taking with them proprietary knowledge that your business requires to continue, or just cannibalizing clients because the business was built upon specific relationships with the employee.

    I don’t think contracts are an effective way to protect that situation, because if someone walks away and takes your clients with them, there is a high chance you were undervaluing the contribution that employee had to the business.

    Sure you can throw up legal and ethical barriers, but ultimately everyone has to eat.

  6. Gab Goldenberg on November 28, 2007 at 5:10 am

    I was with you till this:
    Of course NDA are negotiable and subject to what the market will bear.

    Come on. You want to get hired, you need to sign the NDA. It’s standard form and also a contract of adherence. No go, no job. Especially in bigger firms, where there’s no time to waste f’in around. You need to have standard legal terms so your legal team can be sure where they stand.

  7. Marty Weintraub on November 28, 2007 at 11:55 am

    Gabe, we agree about this. Remember, we’re the employer here and we’re writing from that perspective. We don’t hire anyone who won’t sign a non-compete which protects our client list. Thanks for the comment.

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