CLOSE-UP: COMMENT/COCA-COLA VS PEPSI - Interpublic and Omnicom are pawns in Pepsi-Coke dispute. Stopping agency staff from moving to rivals is not free trade

For the best part of a century, the US has been the world's

greatest advocate of free trade. Having taken over from the United

Kingdom as the world's largest economy, it was the only logical stance

to take. But just like the British before them, the Americans do not

necessarily practice what they preach.



And, like the British, the Americans did not get where they are today

without the helping hand of protectionism.



The recent dispute between the Interpublic and Omnicom networks in the

US demonstrates the American preponderance for using another device for

achieving economic advantage - litigation. Like protectionism, this is

hardly compatible with the espousal of free trade.



But then again, recent world events suggest that all's fair in love and

war. The unfortunate fact for the protagonists in this dispute is that

they are pawns in someone else's war. In this case, it is the war

between the agencies' respective Coca-Cola and Pepsi clients.



There are three key elements to this story: ownership; people; and

knowledge.



It is worth considering what might happen in the UK if a dispute were to

arise in similar circumstances.



Most reports of the dispute have begun the story with the change in the

ownership of FCB by virtue of Interpublic's acquisition of its parent,

True North. This precipitated the decision of Pepsi to move its accounts

(including Gatorade, Tropicana and Aquafina) from FCB to DDB, part of

Omnicom, because of concerns about the long-standing relationship

between Interpublic and Coke.



But the origins of this battle go back further. One account at the

centre of the dispute, Gatorade, is a very successful sports drink

belonging to Quaker Oats. Quaker was bought by Pepsi during the past 12

months, apparently having beaten off competition from Coke. It is

interesting to wonder whether that has something to do with the recent

spat between their respective agencies.



Change of control and ownership can impact on provisions for conflicts

of interest in client/ agency contracts in a number of widely varying

ways. In the most extreme cases, if a contract deals with the issue on a

group-wide basis, a conflict of interest might arise as soon as the new

parent purchases an agency. That could leave the agency in breach of

contract, with the client free to terminate the contract with immediate

effect. On the other hand, if the conflict clause only applies to the

agency itself and not to other affiliates in its group, the acquisition

may be of no legal consequence. The client may not see it that way from

a commercial perspective, but its only option might be to serve

contractual notice.



In this dispute, as well as wanting to take its own business elsewhere,

Pepsi was also trying to prevent FCB staff who had worked on its

accounts from working on rival Coke accounts awarded to FCB after

Pepsi's move to Omnicom.



In these circumstances, it would make sense for Pepsi to delay the

termination of its contract with FCB, extending the duration of any

post-termination restrictions.



The second element of the dispute concerns people. Interpublic began

proceedings against Omnicom for working with Brian Williams, the former

chief executive of FCB's Chicago office, to entice other FCB employees

to join him in moving to Omnicom to service the new Pepsi accounts. In

the UK, an agency faced with the potential redundancy costs on losing an

account might have been tempted to let these employees leave quickly,

quietly and with the minimum of fuss. In the US, however, the employment

law is very different and the "hire 'em and fire 'em" culture and law

would not give rise to the same temptation.



The situation was complicated further by the fact that FCB was replacing

Pepsi's Gatorade and Aquafina accounts with Coke's Powerade sports drink

and Dansani water accounts. Was Interpublic's action against Omnicom

driven by a desire to use the same personnel on the new accounts? The

answer may never be known, because Pepsi launched a separate action

against FCB to prevent people who had worked on its accounts from

working on the new Coke accounts. Eventually FCB and Pepsi agreed a bar

on such activity until 1 June 2002, about nine months after Pepsi's

decision to move the accounts.



This illustrates the overlap between the "people" element and the final

element; knowledge. The most important knowledge is in the heads of the

account team. Although confidential information can readily be protected

by the courts, the problem arises when an individual who posses such

knowledge moves from one agency to another. In this case, it is hard to

imagine that Pepsi was unhappy that its new agency, DDB, was apparently

trying to solicit people from its old agency, FCB. Meanwhile, it was

clearly unhappy that anyone who did not defect might somehow end up

working for one of FCB's new Coke accounts.



One consistent thread through all the press coverage is Pepsi and Coke's

reluctance to comment. Both companies seem happier to present the matter

as a dispute between the agencies. And yet it is hard not to conclude

that the main incentive for the dispute was a desire by the agencies to

be seen to be doing the "right thing" by their clients.



With consolidation proceeding apace, it is hard enough to deal with

conflicts in the context of continuing client/agency relationships. As

for historic relationships, advertisers would be better served by

limiting their claims of ownership to their confidential information.

Former agencies should be free to sell their services to other clients,

provided they respect confidential information.



Employees of former agencies should be free to change jobs, again with

the proviso that they respect confidential information. That's what's

called free trade.



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