The Top Five Legal Mistakes Made by Creative Agencies

Our attorneys at Crown, LLP have represented Creative Agencies — such as branding, naming, package design, marketing, and public relations agencies – for well over twenty years. Over and over we see the same legal issues and mistakes made by Creative Agencies in their contracts with their clients as well as in operational issues that can cause conflict and significant legal liability. These are the top 5, in no particular order:

Shortcut to Copyright Infringement: Commonly, a Creative Agency is engaged by its client to provide original design elements that the client can then, in turn, use on its packaging, advertising, digital marketing materials, trade show booth, social media pages, and other communications. As an example, let’s say your branding agency has been engaged by a new coffee company to create a logo design that the coffee company intends to print on all of its paper coffee cups, bags of coffee beans, and all of its marketing and advertising campaigns worldwide. We would fully expect the Agency-coffee company Services Agreement to include language along the lines of the following: “Agency’s Services and Deliverables shall not infringe or misappropriate any copyright….”. We would also fully expect the contract to contain representations and warranties that the materials delivered are original, and those representations and warranties would be backed up by an indemnity provision, providing that the Agency will cover all damages and attorneys’ fees resulting if those representations and warranties prove untrue. Essentially, the Agency is representing that its deliverables will consist of entirely original materials, not designs merely copied or derived from an existing design, and further, the Agency is agreeing that it will defend and indemnify the coffee company for any claims that run counter to the Agency’s representations and warranties. This is entirely fair. After all, the client is paying the Agency for original designs and that is what they should get.

But deadlines approach rapidly, and maybe one of the Agency’s artists takes a shortcut and either creates a deliverable that is largely based on an existing design or just outright copies a design they found on the Web or elsewhere. Not knowing this shortcut was taken, the Agency provides that deliverable, the client loves it, and they include it on all of their coffee cups and bags of coffee beans being sold worldwide. All seems fine for a bit, but then the Agency’s client gets a cease and desist letter from a law firm alleging copyright infringement, providing a copy of the original work with reference to their copyright registration number for that work, and demands that the coffee company immediately discontinue use of all materials bearing the infringing work, pay monetary damages, and pay an amount that will cover their attorneys’ fees. This is going to hurt. A mistake like this is likely to cost the Agency far more than the fees earned in its contract with the coffee company.

The only way to deal with this problem is to consistently confirm with your workforce that all deliverables must be original; no copying or re-working existing designs.

Failure to secure a Right of Publicity License: Another common scenario is when an Agency client wants to use a photograph of an individual in an advertising campaign. Hopefully, a license from the photographer allowing use of the photo will have been secured (or, alternatively, copyright ownership of that image has been secured via a proper Work-for-Hire Agreement). If so, that’s great! With ownership of the photo or a proper license from the photographer, the Agency does not have to worry about copyright infringement (assuming that the photographer did, in fact, take that picture). But there is more. The state of California, and most states in the country, now recognize a statutory right of publicity. The right of publicity is the right of each person (and not just famous people) to control the commercial use of their name, image, and likeness, “NIL” for short. As such, in addition to securing a license from the photographer (or ownership of the image via a Work-for-Hire agreement), in order for the Agency, and ultimately the Agency’s client, to use that item, it will be necessary to track down the individual(s) that appear(s) in that photo and get a right of publicity license from them. Violation of the right of publicity can be expensive – in California, a violation of the right of publicity allows the aggrieved party to pursue either his/her actual damages or opt to seek statutory damages, plus his/her attorneys’ fees. So if an Agency client wants to use a photo of a person as part of their marketing efforts, the Agency must make sure that it has secured a right of publicity license from the identifiable individual(s) in that photograph, allowing the client to use that image without concern of violating the right of publicity.

Failure to Enter into a Written Work for Hire Agreement with Contractors providing Creative Services Before the Work Begins. Sometimes a Creative Agency will hire an independent contractor to create a discrete element of a deliverable that they are not well-suited to provide. For example, an Agency may be loaded with talented artistic personnel, but the required deliverables on a particular job include the creation of an app that would house and play back the various items of creative content to be provided. The Agency has nobody on staff who can create an app so it finds an app developer, agrees on a price for her services, they shake hands on the deal terms, and the parties get down to work. The app is delivered, paid for, works beautifully, and is then provided to the Agency’s client, along with the other creative materials developed by the Agency. The app becomes popular beyond what anyone could have expected and suddenly the app developer comes back and says she owns the app and the use and distribution of the app without her consent violates her copyright in that work. Guess what? The app developer may be correct.

Of course, the Agency says they already paid for the app, they shook hands, they had a deal. The Agency is even waving around the cancelled check showing that the developer has received payment, as agreed. But the app developer has a claim. Under the Copyright Act, if the hiring party is to be the owner of the hired party’s output, those parties must enter into a proper, written Work-for-Hire Agreement specifically commissioning that work before the work begins. In this scenario, technically, the creator of the app still owns it and can seek compensation for infringement of her copyright. There is a strong defense to such a claim – implied license — and the Creative Agency will probably win under these facts pursuant to the implied license defense. But it is a defense, meaning it will be necessary to litigate and prove that defense to prevail on the matter. That means a substantial investment of time and money – for something the Agency and the client already paid for! Accordingly, always secure ownership of your independent contractors’ deliverables by entering into a proper written Work-for-Hire Agreement before the work begins.

Failure to Secure a Typeface License for the Agency’s Client. Typefaces and fonts (here, we’ll use those terms interchangeably) are commonly licensed for use as part of a software package. With each software license, you likely have a license to use the Arial, Times New Roman, Calibri and other common fonts that come with a software package. But most Creative Agencies will seek out a more unique font to use in the deliverables provided to its client, and the Creative Agency will typically have licensed a package of fonts for this purpose. Because it has a license, the Agency can use the licensed font/typeface to create the deliverables for its client, but does that mean that the client can use that typeface in its logo or other design elements in its packaging and marketing materials in all media? For a unique font, probably not. Bottom line, it is likely that multiple font licenses are needed — one for the designer/Agency’s use in creating the deliverables, and another for the client to allow it to use this font on its goods and marketing materials to be distributed. As such, it is imperative to make clear to clients that they will need to secure a typeface/font license independently (or let them know that the Agency will secure the license for them, which will be a cost item in the contract).

Overpromising about your client’s ability to use Deliverables as a Trademark. This common mistake is addressed in depth in an earlier post. In short, the first draft of a Services Agreement an Agency may receive from its prospective client may require the Agency to provide a factual representation along the lines of the following: “Agency represents and warrants that all Deliverables of Agency to Company pursuant to this Agreement shall not infringe upon the intellectual property rights of any third party and shall be original except for any Company Materials provided by Company for inclusion in the Deliverables.”

While the Agency can warrant and represent that its deliverables are original (and thus not violative of a third-party’s copyright), that no third-party patent is infringed (it is highly unlikely that the deliverables include a patentable invention), and that no right of publicity is violated (because it is within the Agency’s power to secure a right of publicity license from individuals that appear within the deliverables), the Agency cannot represent that its client’s use of the deliverables, or a portion thereof, as a trademark, will not trigger a trademark infringement claim anywhere in the world. This representation with regard to trademark infringement cannot be made because it is largely impossible to determine whether some party somewhere in the world has common law or registered trademark rights that would be infringed by the client’s use of the deliverables as a trademark. Again, this is addressed in greater detail in this earlier post.