Sydney Mitchell LLP
Long before the pandemic hit, forcing more and more businesses to operate online, traditional business models and marketing strategies were becoming outdated and even obsolete in certain sectors advises.
Take the well-publicised example of Gymshark for instance, which was credited with revolutionising the way manufacturers and distributors market their products. The use of social-media influencers to market products, which was once considered a brave and bold new strategy, proved so effective that it catapulted the company to a £1billion start-up, and became standard industry practice, in less than 10 years.
The power of social media is such that it is now a key part of any business’ marketing and branding strategy. It is particularly important in sectors such as online training and education where subscriptions are purchased on the basis of the pull-power of individuals who build and carefully craft an online presence.
However, from a legal perspective, this creates a challenge for businesses looking to protect their interests long-term.
The balance between protecting a business’ assets, and preserving and encouraging competition and free trade, and protecting an individuals’ right to move jobs, has long been a delicate one.
Many companies rely on contractual protections by imposing post-termination restrictions on their employees. The validity and effectiveness of such clauses are however subject to challenge and businesses need to be careful not to rely on “standard clauses” which may prove to offer no protection at all. It is key that any legal clauses which impose onerous restrictions on another party are carefully considered and professionally drafted.
The other difficulty is that if a social media-influencer has a significant online presence, information and online content can be posted immediately and disseminated to a wide audience, both in terms of numbers and geographic reach. That is both a tremendous benefit and a significant risk to a business.
All social media platforms and online review platforms are very clear that they undertake no editorial activity and simply provide a platform that allows individuals to post content. That makes it very hard for businesses to control what information is published and it is easy for a disgruntled individual to make damaging and defamatory comments online.
It was Warren Buffet (frequently and widely lauded as a legendary investor and sharp and powerful business mind) who said: “It takes 20 years to build a reputation, and 5 minutes to ruin it. If you think about that, you’ll do things differently”. The principle being that it is far easier and quicker to damage a brand than to build it, and social media has made it quicker and easier than ever before.
We recently acted in a claim for injunctive relief against a former director who made a sudden and very public departure and set up a competing business, having taken a number of the company’s assets, such as customer database.
The core of the dispute involved an argument as to who “owned” the social media following, and what action could be taken to de-escalate what had become a nasty social-media campaign against the company, led by the outgoing director.
The company, which specialised in online education courses, was established by 3 directors and launched following approximately 1 year of development for an online platform to deliver content.
Various social media accounts were set up in the Company’s name, but were operated by the outgoing director who had a pre-existing social media presence. Indeed, his main value and contribution to the company was his online profile which he used to generate a brand and social media following for the company.
The company had enjoyed a very successful first month of trading and forecasts were good and sales of online courses were expected to continue to be high. The relationship between the 3 directors turned acrimonious and a personal dispute was played out very publicly across the company’s social media platforms.
The company went from sales amounting to three-quarters of a million in the first month, to next to nothing in the second and subsequent months, and a surge in requests for refunds in months 2-6.
The company had no contractual protections in place and there were no formally documented agreements as to the ownership of various assets, including the social media following and the customer database.
We successfully applied for injunctive relief against the outgoing director to prohibit him from competing unlawfully, having obtained a springboard advantage from the company.
Moreover, Sydney Mitchell LLP successfully argued that the director was in breach of his director’s duties and was causing damage to the company’s reputation unlawfully by making defamatory comments online and inciting customers to claim refunds. Accordingly, as part of its order, the Court restricted the director’s freedom to post content relating to the company on various social media and other online platforms.
We are continuing to represent the company in its claim for damages arising from defamation and breach of statutory duty. It remains to be seen how the Court will determine who owns the significant social media following and whether the company can claim any ownership of an individual’s following on the basis that it was built (at least in part) at the direction of and using the resources of the company.
When it comes to protecting your business interests – the old maxim of “prevention is better than the cure” rings true; it is far easier and certainly far cheaper to invest in professional advice to ensure your business is protected should things go wrong, or take an unexpected turn, than to have to engage in a difficult legal dispute after the event.
It may seem counter-intuitive to an entrepreneurial mind to focus on the potential negatives of a venture and consider what might go wrong, however, it could pay big dividends.
Sydney Mitchell has a team of lawyers specialising in commercial contracts that can review your company’s contracts and commercial relationships and advise you how best to protect your interests in the long-term. We also have a team of specialists in commercial disputes ready to advise should the need arise.