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Direct Response Marketing

Legal Review: Keeping Your ‘Secret Sauce’ a Secret When Your CMO Joins the Competition

1 Nov, 2015 By: Jeffrey D. Knowles, Venable LLP’s Advertising, Douglas B. Mishkin Response

What can possibly be secret about your performance-based advertising? It is quintessentially public. You want as many people as possible to see or hear your advertisements. You craft its style and substance for public consumption.

In the case of performance-based campaigns, it is easy for competitors to know when and where your spots and infomercials run. Yet every campaign is also a test that yields data. Your analysis of that data tells you which offers and calls-to-action (CTAs) perform best on television and radio, and what combinations of copy, font, layout, and envelope work best in direct mail. All successful DR marketers use that data to continually iterate and refine campaigns to maximize response.

Every marketer dreads the thought of a chief marketing officer (CMO) or other senior executive jumping ship and giving a new employer — your competitor — the knowledge that has made your campaign successful. Avoiding that scenario requires a two-pronged focus: treating your sensitive data so as to secure protection as a “trade secret,” and including enforceable post-employment restrictions in your employment agreements with key personnel.

Under the Uniform Trade Secrets Act, a “trade secret” is:

information, including a formula, pattern, compilation, program, device, method, technique, or process, that: (i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and (ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

By demonstrating your analysis has “independent economic value,” you can satisfy the first requirement. Many marketers spend thousands or millions of dollars to generate and analyze the raw data generated by their campaigns. A competitor who benefits from your analysis without incurring the expenditure arguably is reaping an unfair head start. Ensure your analysis — your “independent economic value” — is not information that can be purchased from vendors monitoring your industry.

To satisfy the second part, all files containing your data and analysis should be clearly labeled “proprietary” and not subject to disclosure without authorization. The employment agreements of your employees (as well as vendors and consultants) who produce and consume your data and analysis should expressly identify this proprietary information as being subject to post-employment restrictions against disclosure.

Unfortunately, trade secret protection is necessary but not sufficient. Given the nature of the information, your former executives do not need to “disclose” any trade secrets or proprietary information to give a competitor the benefit of your investment. He or she can simply say, “Use mailing kit X,” or “Don’t use mailing kit Y,” without having to explain that these mailing kits fit the profiles of the most or least successful mailing kits as measured by your proprietary test results. In these situations, trade secret laws can protect your data and your analysis, but the punch line — which attributes have driven response in your advertisements — is walking out the door in the mind of your departing employee.

Hence, you must have enforceable post-employment restrictions in your employment agreements with key personnel. State laws vary as to what kinds of restrictions can be enforced. In states that will enforce noncompetition agreements, typically the restriction must be tailored to protect the legitimate business interests of the employer while not unduly infringing upon the departing employee’s ability to work.

There is no “one-size-fits-all” noncompete agreement. Marketers looking to protect their information and to restrain departing employees should consult counsel conversant with employment law in the context of the performance-based marketing industry. Understanding how the industry works is essential to drafting a post-employment restriction that will prompt a judge to conclude that it is a reasonable restriction that protects the employer’s legitimate business interests.

Successful performance-based marketing is the result of data-driven decisions based on valuable proprietary information known by valuable employees. Prudent treatment of the information and proper post-employment restrictions on the personnel can protect you from seeing your trade secrets out the door with your departing employee. ■

About the Author: Jeffrey D. Knowles

Jeffrey D. Knowles

About the Author: Douglas B. Mishkin

Douglas B. Mishkin

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