May It Please The Mozzers,

Pssst.  I've got a secret. It involves the hokey pop culture phenomenon, The Secret, and the controversial SEM, Dan Hollings.

Okay. I lied. It's not a secret. In fact, the whole nasty mess is public record because the owners of The Secret are suing their former internet marketer for trademark infringement and violating his duty of loyalty to them.

The case, TS Merchandising v. Hollings, was filed November 2007 and includes allegations that Hollings infringed and exploited The Secret's trademarks by selling his own merchandise under the brand, cutting unauthorized side deals with vendors of authentic merchandise, and generally using his knowledge of SEO for evil by seeking personal gain.

The whole story has the bizarre, made-for-TV feel about it. Regardless, it's an interesting look at the kind of trouble that internet marketers can get themselves into.

---

Rhonda Byrne: Before striking it rich with The Secret, she made reality TV in Australia with promising titles, such as "Marry Me," "Sensing Murder," and "Australia Behaving Badly." She produced the movie version of 'The Secret" and claims that her company, TS Holdings LLC, owns the rights to the screenplay, the film, the book, and the merchandise.

Please note, Byrne has been the most consistent presence in producing The Secret, but the ownership of The Secret is contested. See my case library below. Regardless, when talking about this case, I'm going to refer to Byrne as the plaintiff even though the real plaintiffs are corporations that are affiliated with TS Holdings LLC.

Dan Hollings: Dan is an SEM who claims to be "Perhaps the internet's most sought after consultant." (I have a feeling this may come as a surprise to some people.)  You may recognize his name from a fiasco with BWW (he claims they stole his software) and for inventing the controversial multi-blogging software program, Blog-zilla.

---

In the Complaint, Byrne et al allege that they hired Hollings in 2005 to perform "website management services." Hollings "had no previous knowledge of our involvement with the philosophy set forth in The Secret" and that "The Secret's marketing campaign strategy had already been created." His role was "limited to a website project manager, retained to assist with website development and search engine optimization."

1. Byrne accuses Hollings of breaching a duty of loyalty by taking unauthorized commissions.

Hollings, Byrne alleges, began to "surreptitiously profit from The Secret" by receiving undisclosed vendor commissions since March 2006. She states,

Hollings was responsible for identifying vendor services relating to The Secret website and providing vendor recommendations to TS Merchandising. In this capacity, Hollings owed TS Merchandising the fiduciary duties of loyalty and due care that an agent owes to its principal.

...Hollings negotiated and received an undisclosed 5% side-commission from a vendor that he recommended to TS Merchandising....[H]is commission was a referral fee for procuring [The Secret] Merchandising as a customer for the vendor and is based on the amounts paid by TS Merchandising to the vendor.

Basically, Byrne accuses Hollings of unlawful self-dealing and alleges that he has received at least $42,304.18 from this side deal.

2. Byrne Accuses Hollings of trademark infringement by affiliating Hollings' own music CDs with The Secret DVD by bundling them on Amazon.

Byrne further accuses Hollings of creating and releasing two music CDs titled "The Secret Symphony" and "Journey to The Secret: Stone, Strings & Udu." Hollings sold them on Amazon and arranged to have them bundled with The Secret DVD. He is also accused of writing a review for this "Secret Combination-set" on Amazon. Apparently, Hollings was aware that Byrne had decided not to release a soundtrack to the movie and thought he should fill the demand. Byrne acknowledges that Hollings agreed to change the titles of his CD products and delete references to The Secret pertaining to the product. Despite this, these references to The Secret are still floating around the internet and Byrne accuses Hollings of using his knowledge of SEO to create this confusion.

Byrne also accuses him of "collecting" domain names relating to The Secret for his own personal use, seeking to capitalize on the fame of The Secret trademarks and the goodwill associated therewith.

3. Byrne also wants the Judge to declare that she doesn't owe Hollings any more money.

Apparently Hollings has been informally accusing Byrne of withholding pay for many months prior to the filing of this lawsuit. His lawyer says that Hollings was supposed to receive a percentage share of the profits from sale. Well, he didn't receive that, but he did receive "$8,000 per month, as well as a $50,000 advance in October 2006, and a holiday bonus of $8,000, for a total of $194,000 for 17 months of service." Not too shabby!

4. Legal and Spiritual Claims

According to Byrne, Hollings' conduct violates trademark laws, unfair competition laws, ACPA, and amounts to a breach of fiduciary duty. For what it's worth, Byrne accuses him of some kind of spiritual failing as well:

Hollings’ focus on himself at the expense of The Secret and his failure to disclose his side efforts related to The Secret is not in line with – and therefore working against – the philosophy of The Secret.

---

Concluding Remarks

At this stage, Hollings has not yet filed a formal Answer to the claims levied against him. Instead, the parties are fighting over some jurisdictional technicalities. Thus, I have no idea what defenses Hollings will raise. We have to wait and see what he will admit and what he will deny.

Based solely on the allegations in the Complaint, it looks to me like Byrne has got a pretty strong case for the trademark claims as related to Holling's CDs. He is clearly trying to capitalize of The Secret's brand and it is entirely possible a judge could find dilution, unfair competition, and perhaps consumer confusion.

The more broadly framed trademark questions are less clear. After all, in order to build a massive online marketing campaign, Hollings needed to personally use and authorize others to use The Secret trademarks. There hasn't been any mention of a contract yet in the case, but I would assume that there was one (since so much money was changing hands) and I assume that there was a provision discussing trademarks. On the other hand, there is no breach of contract claim, which is a little surprising.

I'm most interested in the allegations of conflict of interest or breach of fiduciary duty. SEOs and SEMs are regularly faced with potential conflict situations (should I work for a competitor? Should I advise them to set up an affiliate program and then sign up for the affiliate program? Should I refer my client to a particular designer who I know will give me a cut of what he receives from the contract?).

As far as I know, there haven't been any rulings dealing with this issue specifically pertaining to SEOs. However, generally speaking, it is possible for an independent contractor to be an agent. And if you're an agent, then you have fiduciary duties. If you engage in self-dealing, then you breach your fiduciary duty of loyalty. However, not all independent contracts are agents. It depends on a lot of things, in particular the way the project is structured (hourly rate? POD?) and the level of control the principal exerts over the independent contractor. The more the principal controls the contractor, the more likely it is that a court would determine that the contractor was an agent for the principal.

Thus, if Byrne can demonstrate that she exercised a great deal of control over Hollings, then she may be able to prove he was acting as her agent. If he was her agent, then he's pretty screwed because of his self-dealing behavior and breach of loyalty. If, however, he can convince the judge that he was not an agent and merely a contractor acting autonomously to deliver a product, then he's got a great defense.

The Bottom Line: Whether you owe a duty of loyalty to your  client will depend on the terms of your contract, the scope of work you're performing, and the amount of autonomy you have in delivering your service or product. Be careful not to be perceived as the Client's agent. Otherwise, you may inadvertently acquire fiduciary status.

Interestingly, by proving to the Court that he was acting at arms length and with a great deal of independence, Hollings may have inadvertantly damaged his unpaid-earnings claim. After all, if Hollings was supposed to get a cut of the products sold, that would make him more like The Secret's agent and open him up to liability for breach of fiduciary duty. On the other hand, if he wasn't getting a share of the profits, that makes him look more like an independent contract and not guilty of breach of fiduciary duty.  Damned if you do; damned if you don't.

Thanks for reading. As always, I look forward to your comments, questions, and concerns.

Best Regards,

Sarah

Case Library

Another, more comedic, view on The Secret and the Law of Attraction.

Drew Herriot: Claims that he directed and co-wrote The Secret and is therefore entitled to half the profits. He just filed a lawsuit last week to try to enforce his claims. Read about him in the New York Times article.

Esther Hicks also has an ownership conflict with alleged owners of  The Secret.