Grand theft customer

Oct 1, 1995 12:00 PM, Mallardi, Vincent

Printing managers need to be attuned to the threats of and laws covering commercial theft

The printing industry increasingly is in legal and ethical turmoil; the consequence of a change in structure in which some large firms are going after business that formerly was restricted to smaller shops.

Commercial theft has become a threat to the survival of mid-sized companies, many of which lack the resources to litigate against the deep-pocketed big boys. Related to this is unfair competition and, by extension, racketeering in the marketplace.

Lamentably, most managements are uninformed about if and how they can protect their intellectual property, customer bases and, indeed, their very businesses.

First, what is commercial theft? Chicago attorney R. Mark Halligan defines it as "the unauthorized disclosure and use of another person's intellectual property without just compensation."

Halligan currently is representing a promotional marketing and specialty print production company that is suing an ex-client and a major printer that took over that client's account. The suit claims trade secret misappropriation, unjust enrichment, breach of contract, tortuous interference with prospective economic advantage, unfair competition and deceptive trade practice.

In the complaint, the plaintiff, Web Communications, alleges that it created a unique magazine insert format that it engineered to be produced in-line on a double web press. The client and the other printer are accused of subsequently reproducing that product.

The commercial theft aspect of this case has been addressed in the trade customs of our industry for more than 70 years, and was reaffirmed as recently as the 1994 update:

"Experimental or preliminary work performed at customer's request. . . cannot be used without the provider's written consent. Sketches, copy, dummies and all other creative work developed or furnished by the provider are the provider's exclusive property."

Also, most jurisdictions have statutes covering trade secrets. Illinois' definition is:

"Information, including but not limited to technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, process, financial data or list of actual or potential customers or suppliers that (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy and confidentiality."

Trade secret law, in fact, is inclusive of every commercial activity, technical and non-technical, from estimating methods to job layouts, invoices to payment histories. In one West Coast lawsuit, a printer settled out of court with a broker who claimed the printer had disclosed invoices and markups to the broker's client in an effort to bypass the broker and sell directly. The information clearly was confidential and, in essence, the property of the broker.

An often-used defense is that the end-client initiated the contact, for example, by asking for the billing costs, etc. While it is true that the third party is not bound by the express or implied contract between the vendor and its subcontractor, it is duty bound not to interfere with that trade relationship.

Resolutions of such cases at trial or in out-of-court settlements are reached after determining the validity of the contract between the prime and subcontractor. If the contract is in writing and it contains the necessary attributes of offer, acceptance, consideration and term, its provisions should prevail.

If, however, the contract is not in writing, resolution can go either way. For instance, a New York case between broker Paul Korloff and printer Pica Graphics was decided upon trial that "the purported oral brokerage agreement for commissions was void and unenforceable" because there were no mutual obligations over a term and that "a printing broker for nearly 14 years, essentially assumed the risk of soliciting clients for the defendant without memorializing the terms of his compensation."

Conversely, the broker has won in many other cases.

Not so straightforward and therefore much more of a threat to medium-size printers are new forms of intimidation and preemption that come under the Federal antitrust and racketeering acts.

Consider a recent contract between a multimillion-dollar commercial print buyer and a leading print seller in which the latter assumes all print procurement over a multi-year period. Both have freedom of contract, but what is the effect on competition?

Because the term is long, it may be argued that trade is being restrained. If so, it is a violation of the Sherman Act. This is a misdemeanor subject to fines and imprisonment.

It also could be interpreted as exclusive dealing or a tying arrangement whereby competitors are excluded, tending toward substantially lessened competition and monopoly. This is the purview of the Clayton Act.

Additionally, the Federal Trade Commission Act (FTC) provides for an administrative agency to enforce antitrust laws and, as amended in 1938, to declare as unlawful "unfair methods of competition in commerce and. . . deceptive acts or practices for the protection of competitors, consumers and the public."

Although the case eventually was decided in its favor, R.R. Donnelley & Sons' acquisition of Meredith Burda landed it in the FTC's biggest printing case to date. Partly at issue was a provision of the Celler-Kefauver Act, which prohibits "the acquisition of the whole or part of the stock or assets of another corporation where in any line of commerce or any section of the country the effect may be substantially lessened competition or conditions tending to create monopoly."

Whoa! Is the "line of commerce" narrow as in gravure printing, or broad as in all commercial printing?

Now comes a new FTC case in which a foreign printer is accused of peremptorily taking a job by utilizing a below-cost transfer price on paper from a related entity in violation of the Robinson-Patman Act. This act prohibits discrimination in price between different purchasers of "commodities of like grade and quality where the effect may be substantially lessened competition or tend toward monopoly, and to assure proportionally equal terms to all persons in competition, thus protecting small competitors against the volume producers demanding concessions and allowances giving them unfair advantage."

The assaults on lesser printing companies do not stop here. The racketeering RICOH acts of Congress address the bullying activities of big producers and demanders against a small company. For example a midwest web printer, a longtime supplier for a major cataloger, was approached by another major printer that asserted it was taking over the account. Should the web printer desire to continue with the work, it would do so under less favorable terms dictated by the acquiring major printer.

Few individual companies appreciate the magnitude or systematic nature of the threat to marketplace access that consolidations impose. What remains of the fiercely independent sector of the printing craft must become vigilant and vital in affirming its interests in what must resume to be a free, open market arena for an inherently free medium of the press.

1 Have contracts in writing!

* Confidential disclosure agreement

* Buyer and seller agreement

* Non-competition agreement

2 Become familiar with federal and state laws governing commerce!

* U.S. anti-trust laws

* Uniform commercial code

* Trade secrets statutes

* Criminal code

3 Be alert to violations of law by competitors and prospective customers!

* Report suspected acts and be prepared to participate in legal remedies

VINCENT MALLARDI, C.M.C. Contributing editor and a leading market consultant, seminar leader and writer

Grand theft customer

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