Australia - Direct Selling - Distributor Agreements - Policies & Procedures - NSW Supreme Court Grants Orders Restraining Distributor from using Intellectual Property and Confidential Information of a Direct Selling Company

In the direct selling space, independent distributor agreements and the Policies and Procedures that apply to Australians are rarely the subject of litigation. To the extent that disputes between distributors and direct selling organisations (DSOs) with whom they contract exist, they are usually settled without recourse to litigation.

However, recently the New South Wales Supreme Court 1 considered whether the conduct of an independent distributor warranted the DSO being granted an interlocutory injunction to restrain the distributor from breaching the independent distributor agreement and Policies and Procedures.

DSOs can take some comfort from the decision to grant the DSO interlocutory injunctions restraining the distributor from using the DSO's intellectual property and confidential information, including distributor contact lists and the Court's recognition that the DSO's termination of the distributor agreement was valid in the circumstances.

Background

The independent distributor (Demonstrator) entered into a distributor agreement with Stampin' Up! Australia Pty Ltd (Stampin' Up) in 2009 (Agreement). The Agreement, like most in the direct selling or multi-level marketing space, also incorporated Stampin' Up's Policies and Procedures (Policies) which were contained in the Distributor Manual (Manual). The Agreement included standard industry clauses which:

acknowledged that various intellectual property (IP) was owned by Stampin' Up and was required to be used strictly in accordance with the Policies (clause 10); acknowledged Stampin' Up had exclusive proprietary rights in information developed by or for it, including distributor lists which were confidential and only to be used in the distributor's business relationship with the company. Distributors were required to agree expressly to not use the confidential information other than in connection with Stampin' Up and its products and, upon termination, to cease all use of the confidential information (clause 11); and enabled the parties to terminate the Agreement at any time on 30 days' notice or, at any time upon written notice for breach or failure to comply with the Agreement or the Manual (clause 19). On 23 February 2012, Stampin' Up gave written notice to the Demonstrator under clause 19 that the Agreement would terminate on 31 March 2012 (the annual renewal date of the Agreement).

On 30 March 2012, Stampin' Up gave further written notice (under clause 18 of the Agreement) that...