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How to Deal With IP Rights When Contracting With Clients: A Guide For Creative Agencies

  • 20 May 2022
  • Studio Legal

Written by Alyce Evans and Jennifer Tutty, Principal

If you run or work in a creative agency, intellectual property (IP) will be a big deal for you. Running a successful agency requires an understanding of how different types of IP affect your individual business. However, IP law can be a tricky field to navigate (even for lawyers).

Fortunately, we love IP law and working with creative agencies.

In this blog, we explain the IP legal lingo all creative agencies need to know, outline the key approaches to dealing with IP in your agency and provide our best practice recommendations.

Part 1: IP Lingo

Legal lingo is a language of its own. If you run or work in a creative agency, it’s time to learn (and truly understand) the following key legal lingo.

Intellectual Property (IP)

Intellectual Property (IP) is a bundle of legal rights including:

– Trade marks;

– Designs;

– Copyrights; and

– Patents. 

Common IP rights created by agencies include trade marks (new brands, slogans and logos) and copyrights (software, drawings, logos, artworks).

Trade Marks

A trade mark is a sign (sometimes referred to as a ‘badge of origin’) that is used by consumers to identify the source of goods and services. In other words, it is a way for consumers to distinguish goods and services provided by one business from those provided by others.

Trade marks are commonly words or logos. However, trade marks can also be registered for slogans, colours, pictures, shapes, aspects of packaging, scents, sounds or combinations of these. The owner of a registered trade mark will officially own the trade mark and have a legal right to use, licence and sell the trade mark.  

To learn more about trade marks, have a read of our blog: ‘Top Trade Mark Tips: How to use Trade Marks to Protect your Brand’.

Copyright is a subset of intellectual property that can be transferred, licenced and given away. It protects a bunch of rights in certain creative material such as literature, images, sound recordings, dramatic works, musical compositions, software and art.

Copyright owners have exclusive rights to do certain things with their copyright work, like reproduce it, publish it for the first time and communicate the work to the public (note: this is not an exhaustive list).

The general rule is that the creator of the copyright is the owner of the copyright. However, there are some exceptions to this (e.g. materials created by employees and photos taken by photographers for private use).

As a creative agency, it is important to understand how copyright law applies to you. In particular, you’ll need to wrap your head around (or have an IP lawyer assist you with) copyright ownership, assignment and licensing.

Understanding copyright will help you to protect, enforce and better commercialise your own IP, while preventing any accidental infringement of others’. It will also enable you to understand who has ownership of copyright when dealing with clients and contractors. With this knowledge, you can make smart, informed decisions for your agency.

To learn more about copyright, have a read of our blog: ‘9 Common Mistakes People Make About Copyright’.

Moral Rights

Creators of certain types of copyright works also have moral rights in relation to those works. These rights are separate from and in addition to copyright. They include:

– The right to be attributed as the creator of the work;

– The right not to have the work falsely attributed to someone else; and

– The right to have their work protected from derogatory treatment.

Moral rights stay with the creator and cannot be assigned even if the copyright is transferred to a new owner.

Deliverables

Deliverables is a term used to define things that are produced and delivered to your clients under your client services contracts (Deliverables).  

The term ‘Final Deliverables’ is often used to describe the final and completed set of Deliverables under the contract (Final Deliverables). These must be handed over to the client at completion for commercial use by the client. Final Deliverables can be referred to as ‘developed IP’ as well.

‘Draft Deliverables’ is another term commonly used and refers to all deliverables which are not Final Deliverables (Draft Deliverables). These could include draft concepts, notes, drawings, designs and text. It is important to establish when contracting with clients whether the client will own and/or be entitled to use Draft Deliverables in addition to the Final Deliverables.

Source Files

Source files are the editable files that form the basis of the Final Deliverables. For example, these include Adobe Photoshop files, Illustrator files or InDesign files. Source files can also be referred to as raw files.

When contracting with clients, you should think carefully about whether to hand over the source files to clients as part of the Final Deliverables.  If source files are handed over, the client may not return to the creative agency for updates to their creative assets (which in turn reduces your ability to earn further income from the Final Deliverables or may damage the integrity of the Final Deliverables in the future). We recommend that creative agencies retain ownership and control over the source files wherever possible and certainly charge an additional fee to hand these over.

If you are assigning source files to clients, you may like to insist that the client does not attribute you as creator of the works once a third party agency has edited the deliverable using the source files.

Assignment of IP

An assignment of IP rights refers to a legal transfer of the ownership of IP from the owner to another party.

For example, imagine your agency creates a logo for a client. As the creator of the logo, your agency is the original owner of the copyright. However, in your contract, you agree to assign copyright in that logo to the client. This assignment of copyright means that legal ownership of that logo will be transferred from your agency to your client. 

Notably, conditions can be placed on assignments of IP.

For example, you may choose to assign a copyright for a certain territory only or for a period of time (after which the rights are then assigned back). Another condition could be that the person receiving the rights is not entitled to make any modifications to the IP or may only use it as part of a certain campaign. If you assign IP to a client on an unlimited basis (i.e. with no conditions), we recommend that you receive a higher fee than if you granted a conditional assignment or a licence in that IP.

Licence of IP

A licence refers to a set of permissions an IP owner gives to another person to use their IP.

Licences can be ‘unlimited’ but commonly come with terms and conditions. Common licence terms and conditions include:

– The territory;

– The time period of the licence;

– Whether the licence is exclusive or non-exclusive;

– What media it can be used in;

– Specific usage rights (i.e. that the IP can only be used in relation to a specific event or campaign);

– Licence fees; and

– Any other restrictions of use (e.g. that the IP cannot be used on billboards).

Exclusive Licence

An exclusive licence of rights refers to a licence that is granted to someone who then has the right to use the IP to the exclusion of all others. For example, if a business has the exclusive right to use a graphic design in Australia, no one else in Australia is entitled to use that design in Australia. 

A licence may be granted on an exclusive basis for territories, media streams and other areas. Exclusive licences are usually worth more in terms of licence fees than non-exclusive licences.

Non-exclusive Licence

A non-exclusive licence means that the receiver of the rights will not be the only person entitled to use the IP.

Background IP

Background IP refers to an agency or client’s IP that existed prior to, or was developed independently from, the project the agency and client are working on (Background IP). Background IP can also be referred to as ‘pre-existing IP’ or IP belonging to the client or agency.

An agency’s Background IP may include template designs, code, processes and documents.

A client’s Background IP may include their brand assets, trade marks and designs, which they give to the agency for incorporation into the deliverables. It is important that creative agencies think carefully about what Background IP they are using in any client project. 

Creative agencies should never assign their Background IP to their clients as part of any Final Deliverables. This is one of the biggest risks for creative agencies in contracting and why it is so important for creative agencies to engage a lawyer specialising in providing services to their industry to prepare a tailor-made contract for clients.

Third Party IP

In providing design services to clients, there will be instances where your agency needs to use IP rights belonging to third parties (Third Party IP). 

For example, you may:

– Incorporate a special font into a website you deliver;

– Use a third party website design platform such as Word Press as the base for a website you deliver; or

– Use stock imagery for a mood board you deliver.

It will generally not be possible for you to assign or sub-licence Third Party IP to your clients, unless you have an existing relationship with the third party allowing you to do so. Ideally when contracting with clients, although client agencies may facilitate the initial obtaining of the third party licence, the ongoing maintenance and payment of the third party licence should be placed on the client.

Self-Promotional Rights

If you wish to use your client’s Final Deliverables for self-promotional purposes (i.e. on your socials, website, in competitions and in show reels), the client will generally have to give you a licence to do so. This is especially relevant if you have assigned or exclusively licensed the Final Deliverables to the client.   In addition, if you wish to use your client’s brand name or logo to promote the client on your client list, you should also obtain written consent from your client. These consents can be covered off in your client terms and conditions.

Part 2: What IP Rights Should You Give Your Clients?

From our experience in dealing with many agencies and client contracts over the years, we can confirm that a lot of agencies and their clients are confused about IP. 

To overcome this confusion, we firstly recommend that creative agencies educate themselves on the various types of IP rights and the various ways IP can be assigned and licensed to clients for projects (see Part 1 above).

Secondly, we recommend that creative agencies develop and implement an IP policy for their business. An IP policy will pre-determine what IP rights are given to clients for different types of projects, and what compromises the creative agency is willing to make where a client requires additional rights not usually granted by the agency in accordance with their IP policy.

To help you develop a strong and successful IP policy, we discuss the four most common approaches for dealing with IP in client contracts.

Option 1: Full Assignment of IP

If you give away all IP rights you create in relation to a project, this will include the Draft Deliverables, Final Deliverables and any Source Files. This assignment is sometimes referred to as a ‘buy-out’. Often, larger companies will demand an assignment of this kind.

If undertaking a ‘full assignment of IP’, you should:

– Charge a premium fee;

– Ensure that your Background IP is not assigned;

– Ensure that any Third Party IP is not assigned; and

– Consider whether there are any limitations on how the client may use the IP rights (for example, only for a certain time period, for a certain location or in a certain media stream).

Is this approach recommended?

If you can charge a premium price and ensure that your Background IP and Third Party IP is not transferred, then this option might work for your agency, especially if working for a client that insists on owning all creative materials.

Option 2: Assignment of IP Excluding Draft Deliverables

If a client insists on owning the Final Deliverables (and the underlying Source Files) or you wish to create an IP policy whereby your clients own the Final Deliverables (and Source Files), then we recommend that Draft Deliverables (which include draft concepts not chosen for commercial use) be retained by the agency and not assigned.   

By retaining Draft Deliverables, you leave yourself the opportunity to charge the client for adopting draft works and concepts in the future, or using them for other clients.

Furthermore, you are able to better protect the integrity of your work and your brand if you don’t hand over drafts (which as you will appreciate are not finalised and may not be suitable for commercial use in their current form).

If undertaking an assignment of IP excluding the Draft Deliverables, you should:

– Charge a higher fee;

– Ensure that your Background IP is not assigned;

– Ensure that any Third Party IP is not assigned; and

– Consider whether there are any limitations on how the client may use the IP rights (for example only for a certain time period, for a certain location or in a certain media stream).

Is this approach recommended?

If you can charge a higher price and ensure that your Background IP and Third Party IP is not transferred, then this option might work for your agency where you are wanting to portray a more ‘client friendly’ IP policy. Additionally, many larger businesses will insist on this as a default IP position in client contracts (so you may have no choice!).

Option 3: Assignment of Final Deliverables Excluding Draft Deliverable and Source Files

In this approach, the IP in the Final Deliverables is assigned to the client, while the agency (that’s you) retains the Draft Deliverables and Source Files.

This is one of the most common approaches taken, especially where the agency has a more balanced bargaining power with the client

We have already outlined the benefits of retaining Draft Deliverables above in option 2. By retaining ownership and control of the Source Files, you will retain the right to carry out alterations, enhancements and improvements to the Final Deliverables in the future. This can provide an additional ongoing revenue stream. Additionally, this allows you to control the quality of the work, which can protect your reputation.

If assigning rights in the Final Deliverables only, you should:

– Ensure that your Background IP is not assigned;

– Ensure that any Third Party IP is not assigned;

– Consider whether you offer the client the right to acquire ownership of the Source Files for an additional predetermined fee (which will be set out in contract); and

– Consider whether there are any limitations on how the client may use the IP rights (for example only for a certain time period, for a certain location or in a certain media stream).

Is this approach recommended?

This approach is often in practice the same as granting your client an exclusive licence to use to the Final Deliverables. However, by assigning the IP in the Final Deliverables, your client will feel comforted and secure knowing they ‘own’ the IP, which can be beneficial for client satisfaction and relationships.

We like this approach at Studio Legal as it feels like a ‘win-win’ for agency and client.  If you adopt this approach, it is vital that you have a carefully drafted client agreement prepared by a law firm specialising in drafting contracts for creative agencies.

Option 4: Exclusive Licence of Final Deliverables

This is another common approach to dealing with IP use in creative agency agreements. In this approach, you (as the agency) retain ownership of the IP in the Final Deliverables but grant an exclusive right to allow the client to use the Final Deliverables.

The granting of an exclusive licence means that no one else (including the agency) is permitted to use the Final Deliverables except the client. This is why the approach is similar in practice to the approach in option 3 above.

If exclusively licensing rights in the Final Deliverables, you should:

– Ensure that your Background IP is not exclusively licensed;

– Consider whether you have the right to sub-licence any Third Party IP or whether your client needs to acquire a licence direct from the third party;

– Do not purport to exclusively licence any Third Party IP to the client (as you won’t typically have the right to do so);

– Consider and advise the client whether they have the right to the use the Source Files as well (or will there be an additional charge for this); and

– Consider whether there are any limitations on how the client may use the IP rights (for example only for a certain time period, for a certain location or in a certain media stream).

Is this approach recommended?

A lot of agencies like to retain their IP and grant licences instead. As discussed above, granting an exclusive licence in a Final Deliverable and assigning those rights in the Final Deliverable to the client is, in practice, the same thing.

If your client insists on ownership of the Final Deliverables and watertight contracts are in place, then we do not have a problem with our creative agency clients offering this option to their clients.

In Conclusion

Establishing an IP policy for your creative agency is not something you want to DIY. You will need to chat to an experienced lawyer about your options, and then have them draft tailor-made contracts to suit your needs.

Written by Alyce Evans and Jennifer Tutty, Principal

Further Information

If you run or work at a creative agency and have any legal questions relating to intellectual property or wish to engage us to prepare an IP policy or contracts for your clients, please contact us through our online form or via email at hello@studiolegal.com.au.

DISCLAIMER

The information in this article is of a general nature. It does not constitute formal legal advice, and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.