If your contractor competes with you

I was so angry I was chewing nails last week on my way out the door. A DE called and said that her contractor had started producing and selling an item nearly identical to hers. Not only that, but the contractor had increased her production price by 50% and the contractor was selling their similar products for half of what she was selling hers for. None of us are stupid, it is abundantly clear that this contractor was using her customers (two as it happens, two DEs were being taken advantage of by this contractor) to fund her launch into this side of the business. There isn’t a judge alive who’d see this any other way. Still, this DE wasn’t stupid and although justifiably upset, she wasn’t going off the deep end. No, she didn’t have an NDA which is a lousy way to cover yourself and assuming you haven’t broadcast your own proprietary information all over creation (many DEs do so unknowingly, please read the book!), you’ll only get satisfaction if you have the financial means to pursue it because this isn’t a criminal matter but a civil one. Regardless, at this late date, an agreement is moot. However, what might have been useful -particularly in this case- was a non-compete agreement.

A non compete agreement can be a simple document that states your contractor agrees they won’t produce an item like yours and compete with you in the marketplace. “Competing with you” is the key here because it’s likely the contractor is or will be contracting with other customers who are already producing items similar to yours and a contractor won’t sign off on something that will limit the kind of work they can do for other customers and in most cases, you shouldn’t expect it to be otherwise. Likewise, if the contractor is already producing an item like this for resale themselves, it’d be silly to expect that they’d cease doing so just because you came along with a similar product. The difference is, the contractor won’t be able to produce and sell an item themselves in your market if they hadn’t been doing it before you came along. To get an idea of the parameters to be included in such an agreement, here’s a huge list of non compete agreements in use although most of these relate to individuals in employment related contracts.


Now, if you’re new to these parts, please know that this situation is extremely rare so don’t think you need to scramble around and start waiving legal instruments in everybody’s faces because you’ll become irritating and annoying very quickly and nobody will return your phone calls anymore. It is so rare that this is the first incident I’ve heard of. I bounced it around with some people this weekend and they couldn’t believe it either; it just doesn’t happen. The reason why it doesn’t happen is because people talk, word gets out. Do assume I told everyone the name of this contractor because they make the rest of us look bad. The smallest rumor can sink a contractor and this is no rumor (I called the contractor to verify). Accordingly, believe it or not, there are some options here outside of a legal suit.

In this particular case, the contractor claims to belong to four organizations. All of the organizations are lefty-type ethical trade groups promoting sustainability and fair trade practices, like Coop America (I’m a member), the OTA etc. You know I love all that stuff. Anyway, if you have a situation like this, the first thing to do is to see what organizations the contractor belongs to, then read the ethics standards to which all members agree. After which, you file a complaint with the organizing body. Even if the organization doesn’t specifically state that this issue is a no-no, complain anyway. Most organizations will police their members and bring some peer pressure to bear. If anything, your complaint will be a red flag and it is likely that the organization will hesitate to refer this member if their behavior is a poor reflection of the group. In this particular case, the contractor is only a pending member of one organization and it is likely their application will be more heavily scrutinized than even before (you don’t want to get cross ways with coop america, they apply the standards rigorously) and it’s entirely possible that it won’t be approved unless the complainants report a satisfactory outcome. Now, since this contractor feeds in that pool, not being approved can adversely affect their bottom line. Plus, they won’t have any more friends. Peer pressure is a powerful motivator.

You can also complain to the BBB. Be a nuisance and file a complaint because nobody on this side of things thinks this situation is acceptable or par for the course. You can also complain to any private membership groups you belong to (the forum is a good example). Of course it won’t have an immediate outcome but it will advise other members to avoid using services from this provider and besides, designers tend to be a chatty chatty group of people who won’t hesitate to pass along the information elsewhere. Like I said, people talk. Eventually word gets out.

As it was, I called this contractor. She really doesn’t know much herself. She has a slick website and belongs to all the “right” (left) organizations but that doesn’t mean she’s clean. She had the nerve to justify what she was doing by saying that she helped the customer refine the design so she owned it. That is such a lie! As someone who does product development -usually without a written contract- no court in the country will agree that I have any rights to a product I helped develop for a customer unless it was specifically stated that I did. Period, end of story. Like I said, this contractor doesn’t know much herself if she thinks that is going to go over.

In the end, these two designers are taking their work elsewhere. I think that is the best tack to take and I hope they broadcast the source of their frustration in the appropriate venues. Again though, if they’re going to use a contractor who knows slightly more than they do (a reputable contractor will be in accordance with all the standards in the book), they should definitely get a signed statement from the contractor stating that the contractor agrees to not manufacture the item for their own purposes.

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9 comments

  1. Suzanne says:

    Unbelievable!!!

    Is this a good reason to not hire a contractor who is also their own manufacturer and/or retailer? I love that she thinks it’s okay to take people’s money so they can have the privilege of her stealing their designs!

  2. Kathleen says:

    Is this a good reason to not hire a contractor who is also their own manufacturer and/or retailer?

    It can actually be very advantageous to hire a contractor who is in your market. They’re established, you’re not a threat and often, they give you lots and lots of very useful advice you couldn’t get elsewhere regarding selling venues, reps, retail accounts to avoid, sourcing etc. The difference here is that this contractor was NOT in the market but once she saw how successful her customers were, she decided to get into it.

  3. Danny says:

    Most legal disputes get settled out of court. If you can do it yourself it will cost you nothing. Even if she can’t afford a lawyer her contracter doesn’t know that so she should at least make the threat of going to court or settle.

  4. Babette says:

    Clearly circulating this news among other DEs is a good and direct way of affecting the perpetrator. Are there other options to also attack from the other end – the customers? Can you at least alert your customers to an unethical competing product or is this just going to cause them to go and buy it cheaper?

  5. Rebecca says:

    Are there other options to also attack from the other end – the customers? Can you at least alert your customers to an unethical competing product or is this just going to cause them to go and buy it cheaper?

    Whoa! You should never get your customers involved in your manufacturing disputes. Not only is that very unprofessional, but it could make your customers very uncomfortable and leave them with a negative impression of your business (I know, as a customer I’ve been there). Plus you are correct in assuming that the customer may go “check it out” for themselves in search of a better deal. As a retailer I know that our group is rarely loyal to a designer or manufacturer, our primary focus is the bottom line.

    I agree that the best course of action would be to cease use of that contractor, threaten a lawsuit, and tell all of your peers/competitors. You may not be able to ever recover the loses, but it may at least hurt the contractor enough that she never puts anyone else through the greif :(

  6. Vesta says:

    Trust me, Rebecca is right. Your customers, by and large, don’t care. We’ve dealt with “manufacturer” spats in the baby carrier world, and the customers DON’T CARE. They may even go so far as accuse you of squashing other budding businesses. Seen it happen.

  7. Kathleen says:

    Since the accusations have been proven true, can we have the name of the firm or at least the city & state? I would like to know who to avoid.

    The company specializes in children’s and baby products and apparel, particularly organics. Their PO box address is an urban city in east Tennessee.

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