Stealing a Business Model

Q. I have a consulting business that provides a unique service. When I offered my services to a local business, at first they expressed interest and asked me to give details of how I work. However, they eventually declined to hire me, and a few weeks later I learned that they decided to enter my business as a competitor! Is that ethical? Do they have to pay me to make good my loss of business?

A. Maybe you should pay them for the valuable lesson you gained in the importance of discretion in business dealings! Someone who has a unique expertise should be extra-careful to present his or her service without revealing any tricks of the trade.

Now let’s discuss your question. It really depends on whether or not you have a genuine secret or unique specialized knowledge that you disclosed to the potential client.

If there’s nothing secret about your line of work, I don’t think there’s much you can do. If your prospective client, or even if your employee goes into competition with you, you don’t have much recourse.

We can learn this from a similar case in Jewish law. If someone knows of a unique business opportunity and sends an agent to take advantage of it, our law says that it is unethical for the agent to abandon his commission and buy it for himself. Yet even so, the originator of the idea has no real way of making a case against the agent.

And if someone suggests such an opportunity to a colleague, offering to go in as partners, the prospective partner is permitted to decline the offer and take advantage of the opportunity by himself. In this case, the person is not even considered unethical, because he never agreed to work together with the “innovator.” This is similar in many ways to your situation.

But if you have a real business secret, and you made it clear to the clients that your presentation contained confidential information which you revealed only in order to explain your service and under condition of secrecy, then it would be unethical for someone to steal your idea. The Bible tells us, “A talebearer reveals secrets, but a faithful person conceals a thing.” (Proverbs 11:13.)

In this case, where the client was warned that you were disclosing an actual secret, you may also have some recourse in court, including rabbinical court (Beit Din). In this case your presentation was evidently conditioned on the client’s agreement not to take advantage of your idea, and such an agreement has binding force in Jewish law.

SOURCES: Shulchan Aruch, Choshen Mishpat 183:2-4, 370:5; Yoreh Deah 16:6; Minchat Yitzchak II:94; Piskei Din Rabbaniim III:336; Chafetz Chaim I:2:13.