What Every Hyperlocal Publisher Needs to Know About Non-Competes

It was put in writing: hyperlocal publisher The Real Chicago Publishing LLC said it wouldn’t launch another travel magazine that would compete with its advertising and publishing deal with Travelhost. But in spite of the deal, Real Chicago did exactly what it said it wouldn’t do: it launched another hyperlocal travel magazine. Travelhost sued, and now Real Chicago faces a court order to pay Travelhost money damages.

The lawsuit is pretty clear cut, and the outcome could serve as a warning to hyperlocal publishers that they need to study their advertising agreements closely, and determine whether they can honor — or live with — the restrictions that an ad representative, agency or ad network is imposing on them.

According to court records, Real Chicago signed a deal with Travelhost to distribute 15,000 copies of a Travelhost magazine targeted to travelers in downtown Chicago. Real Chicago agreed in its contract “it will not, either directly or indirectly, engage or participate in a similar business or one competitive with Travelhost.” However, two years into the deal, Real Chicago launched “The Real Chicago,” which Travelhost claimed directly competed with its magazine. Travelhost sued Real Chicago in Federal Court in Texas for breach of contract. On February 27, 2012, Federal Judge Joe Fish ruled that Real Chicago breached the non-compete section in its agreement and owed Travelhost damages (the amount was not stated in Judge Fish’s opinion).

Advertising reps and networks may impose restrictions on whether hyperlocal news publishers can work with competitors and how their ads can be displayed.  Some of the restrictions may include:

• You agree to work exclusively through one advertising representative.
• You agree to work exclusively through one advertising representative in one territory (like a state), but you’re free to use reps in other territories.
• You can hire ad reps on a non-exclusive basis.
• If you rely on ad networks and context-based ad providers, the ads must be segregated from other ads and content on your site.

Here are some real life cases that illustrate how these restrictions may work. OneCLE, a continuing legal education site, provides an example of an advertising sales representative agreement between UOL Media Group and Classmates Online, Inc. Section 2.02 of the Agreement provides that “UOL Media Group has the exclusive right, except as set forth herein, to sell all Standardized Ads … on the Sites through retail channels.” The agreement has some exceptions, including, that Classmates Online and UOL both can sell sponsorships. Under this agreement, however, a publisher would not have a right to hire another sales rep to sell standard ads through retail channels.

At one point, certain ad networks restricted publishers from using competitors on the same page of a Web site. Now, ad providers have relaxed this rule, but they still impose restrictions on how their ads can be displayed on your web pages. For example, with Google AdSense, publishers may not display Google ads or search boxes on websites that also contain other ads or services formatted to use the same layout and colors as the Google ads or search boxes on that site. As Google advices in its Ad Placement Policies:

You’re welcome to display Google ads on the same site or page as other third party advertisements provided that the formatting or colors of the third party ads is different enough from that of the Google ads. In other words, if you choose to place non-Google ads on the same site or page as Google ads, it should always be clear to the user that the ads are served by different advertising networks and that the non-Google ads have no association with Google. If the formats are naturally similar, we ask that you choose different color schemes for the competing ads.

Google also frowns on publishers disguising the ads to look like other content on the page. Plus, Google considers that competitor ads are considered to be part of your site’s content and must follow Google’s policy guidelines. So, if another advertising network serves ads promoting illegal activity, those ads would violate your use of AdSense on your site. Chitika requires that publishers retain any Chitika branding that is served with its ads.

Ad networks universally prohibit artificial click-through of their ads. As Chitika’s terms admonish:

Client shall not, and shall not authorize or encourage any third party to: (i) generate fraudulent impressions of or fraudulent clicks on any Paid Listing, including but not limited to repeated manual clicks, the use of robots or other automated query tools and/or computer generated search requests, and/or the fraudulent use of other search engine optimization services and/or software…

Hyperlocal publishers should study carefully the restrictions that their advertising reps and ad network impose on them. Restrictions can influence the layout of a page, and whether publishers can work with other partners for display ads on their pages.

Brian Dengler is an attorney with Vorys Legal Counsel and journalist who covers legal issues in eMedia. He is a former vice-president of AOL, Inc., a former newspaperman, and an EMMY-winning TV journalist. He teaches new media issues as an adjunct at Kent State University and formerly at Otterbein University.