Intellectual Property
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Intellectual Property

Introduction

Intellectual property is a creative agency’s main stock in trade. As such, the parts of the contract dealing with intellectual property are very important. In this chapter, we’ll discuss issues relating to:

  • ownership and transfer of work product;
  • client provided materials;
  • third-party materials (including open source); and
  • names, logos, and slogans (trademarks).
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With this section handy, you’ll be able to navigate the intellectual property provisions of most Client Service Agreements.

Ownership of Work

When an Agency creates work for a Client, who owns it?

The default rule is that in the absence of a written agreement saying otherwise, the work an Agency creates is owned by the Agency and Client only has limited, nontransferable permission (a license) to use that work. In most instances, the Client wants to own the work its Agency creates and the Service Agreement they send you will contain clauses to accomplish this.

First, we’ll introduce the typical ownership transfer provisions you’ll face. After that, we’ll give some negotiating tips for both types of clauses.

Work Made for Hire (WFH)

This method of transferring ownership from Agency to Client actually has a fairly limited application. Under the federal Copyright Act, if work constitutes WFH and there is a written contract specifying it as such, then the copyrights in work created by an Agency is deemed to belong to the Client.

I say that WFH has a limited application because the categories of work that fit the statutory definition are actually quite specific. As applied to Agencies, the most typical works that fit the statutory definition include (i) a part of a motion picture or other audiovisual work, (ii) compilations (a collection of other work, like a website) and (iii) instructional text (how-to guides, infographics). There are a number of other types of work included in the WFH statutory definition, but they are pretty rare in modern creative services work (e.g., an atlas, a test or answers, a translation, and supplemental works).

You’ve no doubt seen a work made for hire clause (WFH). It usually reads something like this:

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All copyrightable aspects of the work produced by Agency for Client are hereby considered “works made for hire” within the meaning of the Copyright Act, and Client will be deemed to be the “author” of all such works.

Note what this clause is doing. It purports to convert all types of work (even things not in the WFH statutory definition) into WFH. Is that effective? I have no idea. From my research, the question (whether work that doesn’t fit the statutory definition of WFH can be designated as such by contract) hasn’t been decided. But the issues for an Agency are the same. We’ll discuss those below after the provision about Assignment.

Assignment

The second way Clients obtain rights in an Agency’s work is by assignment (a fancy word for transfer). You’ll sometimes see an assignment clause appended to the end of a WFH clause that reads something like this:

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To the extent the Materials produced by Agency do not constitute works made for hire under the Copyright Act, Agency hereby irrevocably assigns all rights in its work to Client.

This says that regardless of whether the Agency’s work qualifies as work made for hire, the Agency is transferring all rights in that work to Client.

Negotiating Points

Likely, you’ll face a Service Agreement that has both of these clauses. Fortunately, your key negotiating issues are the same:

  • Condition Transfer on Payment. If you read one paragraph of this book read this one: an Agency should work very hard to require that the Client pay in full before ownership to any creative work is transferred to the Client. This is just like most everything else in life: you pay before you get the stuff (yes, restaurants are different). And the same should apply to your creative work. This is an easy edit to apply:
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All copyrightable aspects of the work produced by Agency for Client are, upon payment in full by Client, hereby considered “works made for hire” within the meaning of the Copyright Act, and Client will be deemed to be the “author” of all such works. To the extent the Materials produced by Agency do not constitute works made for hire under the Copyright Act, upon payment in full by Client, Agency hereby irrevocably assigns all rights in its work to Client.

  • Assignment is Clearer. Remember, we don’t know whether work that does not constitute WFH can be designated as such by contract. As a result, I think having both a WFH clause and an assignment clause in a contract is confusing and may create ambiguity. Ideally, if the plan is to transfer ownership to the Client upon payment, you’ll eliminate the WFH clause entirely. This isn’t a negotiating hill to die on but using only an assignment clause may help bring clarity.
  • Licensing is Technical. Not all Agency work is transferred to Client on completion and payment. Indeed, the Agency retains significant leverage and remedies when it retains ownership and merely licenses work to the Client. The point here though is that licensing is detailed, technical work. There are entire books dedicated to the subject. And with the exception of a this book's few notes about Third-Party Materials (Including Open Source), if you plan to license work to the Client, you should definitely consult with a lawyer about how best to do so.

Client Materials

If the Client will be providing materials for your use in a project, it is important to consider whether those “Client Materials” create risks for you and if so, how to address them.

At its core, the Client should take responsibility for Client Materials it provides to you. Common types of Client Materials include: photos, videos, or ad copy; information and specifications; or logos and brand names.

While the risks associated with Client Materials touch several areas, most Service Agreements don’t speak to the Agency’s risks. So, you’ll need to figure out how to best address those risks.

  • Properly Define Client Materials. To best address risks created by Client Materials, you’ll likely need to define what Client Materials include. Once you have a good definition, it will be easier to address the risks with respect to Client Materials. You’ll want to capture both the explicit things the Client provides as well as some important catch-all’s. Sometimes you’ll work this into the definitions section of an agreement. Other times you may need to create a new paragraph in the intellectual property section or the confidentiality section. However, you go about it, be sure your definition includes information, content, and specifications as part of the definition as these are common sources of liability for an Agency.
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“Client Materials” includes <list specific materials provided by Client> and all other trademarks, information, content, and specifications provided to Agency by Client for use in the project.

  • Representations. An Agency ideally wants representations from the Client that (i) Client has the right to allow Agency to use the Client Materials in the project, and that (ii) Agency’s use of the Client Materials in the manner required by the project does not infringe the intellectual property rights of any third parties. This is particularly important where the Client is providing information and specifications for new software development or when Client is providing content (text, photos, videos) for use in deliverables. A typical representation containing these elements might read:
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Client represents that it has the authority to grant Agency the right to use the Client Materials and that Agency’s use of Client Materials in Client’s project does not infringe any third-party intellectual property rights.

  • Indemnification. Ideally, the Client should indemnify the Agency against claims it suffers because Client Materials were included in the project. At a minimum, the scope of your indemnification obligation should include a carve out for liabilities created by Client Materials. Using a definition such as the one suggested above is key to limiting Agency’s exposure to patent claims in software development projects. It is also great protection in web, print, and video projects where Client provides images, video, trademarks, copy and similar content. A deeper discussion of this issue with sample language is included in this book’s section about Indemnification.
  • Reliance. Make clear that Agency has the right to rely on Client Materials and that it may do so without independently verifying information contained in the Client Materials.
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Agency may rely on information and specifications included in the Client Materials without independent verification.

Keep these recommendations in mind anytime you are dealing with materials your Client provides for use in a project. These steps will help ensure that your Client is ultimately responsible for the stuff it brings to a project (just as the Agency is responsible for the stuff it brings).

Third-Party Materials (Including Open Source)

In almost all projects, an Agency won’t create everything from scratch. Instead, certain existing materials, owned by third-parties, will be sourced by the Agency and incorporated into the project deliverables. Common third-party materials include software (both open source and proprietary), fonts, stock photo or video, music, and illustrations. Keep the following in mind when your project calls for third-party materials.

  • Permission to Include. As a threshold matter, many Service Agreements prohibit an Agency from including third-party materials in a project or require consent before the Agency may do so. For most projects, an outright prohibition won’t work, so you’ll need to negotiate accordingly. Even if all you do is simple WordPress websites, you are using a third-party open source CMS. List third-party materials (or categories of materials) that will be used in the project in the SOW along with a link to the applicable license. Be sure to also include a sentence stating that Client consents to inclusion of the listed third-party materials in the project. If you don’t know what third-party materials will be used in the project, at least try and replace the prohibition that allows inclusion of third-party materials with the Client’s consent.
  • Ownership. Remember, these materials are owned by third-parties. It is critical that the Agency inform the Client in advance that it will not own third-party materials at the end of the project. Instead, the Client will have a license to use those materials. So, when drafting provisions defining what the Client gets ownership to, be sure to exclude third-party materials. Language like this might be a good place to start:
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Upon payment in full of all amounts due under the applicable SOW, Agency (i) hereby assigns to Client all rights in the Deliverables (other than Third-Party IP and Agency Tools).

  • Contributing Back. Many open source licenses require developers to contribute derivatives the developer creates back to the open source project. Your Client may be concerned that confidential or proprietary aspects of the project are being made freely available. You may need to educate your Client about how open source works before and throughout a project.
  • License Terms. Typically, it is Agency’s job to obtain an appropriate license for third-party materials included in a project. They Agency should communicate to the Client any restrictions imposed by the license such as license fees or use limitations. With respect to open source, the Client will sometimes insist that the Agency avoid copy-left type licenses or that only licenses are compatible with commercial development (e.g., MIT license) be used. This is a fair request. Complex software development may require a detailed open source plan and clearance with the Client to make sure the license terms are compatible with their future needs. Try and tackle this before the project starts.
  • No Representations. Because an Agency is not responsible for creating the third-party materials, it can’t make promises about whether the third-party materials infringe someone else’s intellectual property rights. So, be sure to carve out third-party materials from the scope of your intellectual property representations with language like the following:
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Agency makes no warranty regarding Third-Party IP included in the Deliverables.

  • Client Compliance Recognizing that third-party materials are subject to license terms, be sure to also include a promise from Client that they agree to comply with any licenses governing third-party materials (or at least that Client has consented to being included in the project). A simple sentence to that effect gets the job done:
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Client shall comply with the terms of any license agreements governing Third-Party IP included in the Deliverables.

With the above ideas in mind, you’ll be able to minimize your risk regarding the use of third-party materials in your next project.

Names, Logos, and Slogans (Trademarks)

If you your work includes coming up with names, logos, or slogans, there are a few things you need to keep in mind. The problem comes from a situation like this:

Suppose your client Upstart asks Agency to develop a new name and logo for the client’s business. After learning more about Upstart’s business and customers, you develop three original concepts. The concept Upstart chooses is developed into the final work, which Upstart uses in its business.

Six months later, Upstart gets a letter from BigCo, located in another part of the country. The letter claims that Upstart’s name and logo infringe BigCo’s trademarks. It’ll take time and money to sort out. Upstart passes this along to you, asking why this is happening and demanding that you pick up the tab.

This scary scenario is all too real because of a difference between copyright law and trademark law. In copyright, for infringement to occur, the original work must be knowingly copied. So, if the words I am typing now turn out to be scarily similar to words someone else has already written, I am not guilty of copyright infringement if I created my work innocently - without reference to the original work.

Trademarks are different. In trademark law, infringement can occur without any knowledge of the original work. So, even if Upstart’s designer never saw BigCo’s name and logo, Upstart’s logo could still be infringing. There is no innocent creation defense.

So, what’s a designer to do? The key here is to be careful with trademark warranties. Many Client prepared Service Agreements contain a representation that reads like this:

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The Deliverables will not violate or infringe any third party’s copyrights, trade secrets, trademarks or other proprietary rights.

This sentence says that Agency’s work will not infringe anyone else’s trademark rights. But unless the Agency hired a lawyer to do a comprehensive trademark search and render a non-infringement opinion about names and logos it created, the Agency is in no position to make this promise. Web searches or even a search of the trademark office’s database is not enough. An Agency simply can’t make this promise.

There are a few things an Agency can do.

  • Remove Trademark. A simple remedy is to simply strike the word “trademark” from the representation. If Client pushes back, explain that you aren’t a trademark lawyer and they aren’t paying for Agency to do trademark clearance work. The edited version would read like this:
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The Deliverables will not violate or infringe any third party’s copyrights, trade secrets, trademarks or other proprietary rights.

  • Knowledge Limitation. Another option is to qualify the trademark representation to “knowing” infringement. This avoids risk of unknowing infringement under trademark law and limits Agency’s responsibility to copying with knowledge. So, the above example would read
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The Deliverables will not, to Agency’s knowledge, violate or infringe any third party’s copyrights, trade secrets, trademarks or other proprietary rights.

  • No Clearance Services. In combination with either of the above, an Agency should also expressly state that trademark clearance services are NOT included in the scope of the deliverables and that Client is responsible for obtaining trademark clearances.
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No trademark or other clearance services are provided by Agency.

  • Allow Time for Trademark Clearance. You can help your Client address its trademark needs by building in time for Client to obtain trademark clearances. This often fits best at the point where the Client selects from a few concepts but before the desired concept has been refined into final work. If the Client chooses not to conduct trademark clearance services on the names and logos it wants to develop into final work, ask that the Client confirm that to you in writing when they selected concept. You can include language like the following in your sign-off:
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Client acknowledges that (i) Agency has not conducted trademark clearance searches with respect to the work listed below, (ii) no representation is made as to whether the work may infringe third-party trademarks, and (iii) Client has elected not to conduct its own trademark clearance searches prior to selecting the work for development into final art.

  • Limit Indemnification. There is often a clause in the indemnification section also making Agency responsible for trademark infringements so keep these points in mind when negotiating that clause. We discuss that provision in detail in our section on Indemnification.

Names, logos, and slogans are a particularly sticky point for Agency liability. The internet has made names, logos, and slogans visible to customers and other businesses that may believe their marks are being infringed. Keep your Agency out of the cease and desist discussion with the tips listed above.

Conclusion

The intellectual property provisions in your Service Agreement are some of the most important you’ll negotiate. Use the recommendations above to ensure that the Client fully understands what they get ownership to (and what they don’t). Part of this involves clarifying how third-party materials are used in your project (and the Client’s responsibilities regarding those materials). Finally, be sure that the Client understands its responsibility for obtaining trademark clearance of names, logos, and slogans. Having a solid understanding of these concepts is key to educating your Client and avoiding disputes before they arise.

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