A Board Member Left to Start a Competing Nonprofit: What Should We Do?

Steps to take, legal and otherwise, if a board member has taken your nonprofit's ideas, logo, donor list, or the like in starting a new, competing nonprofit.

Question

We started a nonprofit a year ago with just a few board members. As we’ve grown, there have been several arguments between board members, such as the direction our nonprofit should take, the types of grants we should apply for, and the types of events we should be holding. Due to the constant arguing, one of our board members decided to leave. We thought the board member left on good terms, but recently discovered that this board member has started their own nonprofit. Their nonprofit is modeled off ours, including a similar mission statement.

Given that we’re in a small community, it’s been confusing for donors and the general public. What should we do about this issue?

Answer

When you put so much effort into building a nonprofit, it can be devastating to see someone copy your idea and turn it into his or her own. The easiest way to deal with this issue is to try to discuss the issue with the board member. If the board member left on good terms, schedule a meeting to discuss your nonprofit’s concerns and come to a resolution.

If the board member did not leave on good terms, or if the meeting does not go well, your nonprofit should speak with an attorney as soon as possible. Your nonprofit may have several legal claims against the board member. Here are a few common legal claims to consider:

Breach of contract. If your nonprofit had a contract with the board member, it’s time to consult with an attorney on it. The contract may include noncompetition, nondisclosure, and nonsolicitation clauses. A noncompete clause may prevent the board member from starting a competing nonprofit. A nondisclosure clause may prevent the board member from using any information gained from your nonprofit to start another organization. A nonsolicitation clause may prevent the board member from contacting any donors. If the board member signed a contract with your nonprofit, consult with an attorney to determine whether the board member breached that contract.

Intellectual property infringement. A nonprofit will have many types of intellectual property. Its name and logo are covered by trademark law, while its materials, such as its website and brochures, are covered by copyright law. It’s important to review the new nonprofit’s website and other materials to see whether there’s anything that’s been directly copied, or that’s similar enough that it could be an issue. If the board member has copied any of your nonprofit’s materials, there may be a claim of copyright infringement. As for the name and logo, if the new nonprofit’s name or logo is similar to your nonprofit’s, then it’s possible the board member has committed trademark infringement. For both copyright and trademark infringement, your nonprofit will need to consult with an intellectual property attorney to determine whether infringement has occurred and if so, whether it’s worth pursuing.

Unfair competition. Your nonprofit may have a claim of unfair competition if the board member has taken your nonprofit’s trade secrets to use in the new nonprofit, is using the similarities between the two nonprofits to steal donors, or is defaming your nonprofit. Often, a nonprofit will learn about such issues through its donors. If donors or members of the community have contacted your nonprofit about these issues, it’s important to make a record of what was said and then discuss possible legal action with an attorney.

If your nonprofit has a valid claim against the board member, an attorney will be able to send a cease and desist letter to the board member and negotiate a resolution. That resolution could be that the board member dissolves the new nonprofit entirely, or it could be that the board member is allowed to keep the new nonprofit, but has to change the name, logo, website, and any other material similar to your nonprofit.

If the attorney is unable to negotiate a resolution, then your nonprofit may have to look at taking action in court. This can be time consuming and expensive, so your nonprofit will need to consider whether it’s worth going after this board member.

When dealing with a situation like this one, don’t forget the non-legal actions available. Your nonprofit has been around longer than the new one and is better known in the community. It may be enough to up the marketing budget and hold additional events as a way to show that your nonprofit is in the best position to realize its mission. Donors and members of your community may observe on their own what has happened, and the situation could resolve itself.

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