Beware of Those Reps and Warranties in Your Creative Services Contracts!

Creative services providers, like branding, naming, graphic design, and packaging design agencies (to name a few) are commonly engaged by consumer products companies to create new brands, logos, product names, package designs, and a wide range of materials to be used in the marketing and sale of their products to the public.  While there are numerous unique issues that must be considered in the negotiation of a contract between a creative services firm and its client, one aspect of such agreements that is often given short shrift or overlooked entirely as “boilerplate” language are the representations and warranties given by the creative services firm to their client. Do not skim over the representations and warranties lightly! They are not boilerplate and failure to give them due attention can be very costly.

First, what are representations and warranties in a contract and what purpose do they serve? Basically, a “representation” is a statement of fact, given to induce the other party to enter into the contract. The “warranty” is the promise that the representation is true, and usually includes an indemnification of the other party if it turns out it’s not.

For example, in the context of a creative agency’s Creative Services Agreement, it is common that the agency will be asked to make 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.”  This representation and warranty will commonly be backed up by an indemnity provision a little further down in that contract that will state something substantially similar to the following:  “Agency will defend, indemnify, and hold Company harmless from and against any and all claims, liabilities, damages, losses, costs, and expenses (including attorneys’ fees), incurred, arising from, or in connection with Agency’s material breach of its obligations, representations, warranties . . . .”  In other words, if an intellectual property infringement claim is asserted against the client as a result of the client’s use of the deliverables provided by the agency, the creative agency must defend the claim on the client’s behalf, and pay any damages secured under that claim.  Unfortunately, the cost of providing that defense and paying a settlement or judgment will often significantly exceed the fee received for providing the deliverables in the first place.  

On the surface, representing that the content delivered – whether it be a logo, a brand name, or otherwise – when used by the client, will not cause the client to infringe upon third party rights, seems eminently reasonable.  After all, the client does not want to pay for creative materials that only ensnares them in a lawsuit once they distribute that material publicly, as intended.  But, the creative services firm must consider the breadth of the representations and warranties provided and pare them back when appropriate. 

In providing the representation that the delivered content will not infringe upon a third party’s copyright, the creative agency is essentially affirming that the deliverables provided are original creations, not merely copied or derived from someone else’s work.  It is entirely within the control of the creative services firm to provide original materials and it should be able to provide this representation. Of course, this requires a creative agency to implicitly trust that its employees or contractors are creating original content.  It has happened where a creative agency delivers a creative work, only to find out that a lazy employee or contractor copied it from somewhere without their knowledge.  

In representing that a third party’s right of publicity is not infringed, the agency is taking on the obligation of ensuring that, to the extent than any identifiable individual appears within the deliverables, the agency will secure a release of publicity rights from that individual.  This is quite common when the deliverables include a photoshoot or audio-visual piece that includes models or actors.  With the agency managing that photoshoot, it is entirely reasonable to place the obligation to secure right of publicity releases from the models involved in that shoot, and the agency is the party best suited to secure those licenses.  The creative agency should be able to provide this representation.  

However, providing a broad representation of non-infringement of a third party’s trademark rights, especially when an agreement requires a representation that the deliverables will not infringe a third party’s rights anywhere in the world or for any goods or services, is simply not possible and such a broad representation should never be provided by the creative agency.  First, it is important to note that trademark rights can be secured in two ways: (1) by formal registration, or (2) by use of a mark in commerce over time in a specific geographic region.  Securing trademark rights by use of a mark over time and without registration is called a “common law” trademark.  Common law trademarks will not appear in a search of state, federal, or government trademark registries.  Accordingly, it is impossible to determine whether someone, somewhere in the world has established common law rights in a mark that may be similar to the deliverables provided.  

Moreover, typically, the creative agency is not aware of the territories in the world its client may use the deliverables as a trademark (and often, at the time of delivery, their client doesn’t even know how broadly they will be using the delivered materials as a mark).  Further, the creative agency’s client may use the deliverables as a trademark in conjunction with goods and services entirely unknown to the creative agency, only adding to the impossibility of providing a broad representation and warranty of non-infringement.  

In sum, the representations and warranties contained in a creative services agreement should be carefully considered.  While it is possible to represent that deliverables provided will be non-infringing of third party copyright, and also possible to make that representation with regard to the right of publicity of third parties, a broad representation that deliverables used by the client as a trademark will not be infringing should be avoided.