Here at Carolina Craft Legal, it’s not just about beer. Well, at least not all the time. We take great pride in working with individuals that embody the spirit of small business, forward thinking, and passion for entrepreneurship. We’ve highlighted this in some of our previous blog entries and today we’re going to take you down yet another path we haven’t yet covered: licensing agreements

My wife is a graphic design student and does a fair amount of freelance work. This got me thinking about licensing agreements and the role of the attorney in helping graphic designers, illustrators, photographers and musicians, whether as individuals or as businesses, confront the licensing of their creative work with confidence. No doubt, there are plenty of people who have a preference for doing work based on a handshake. While we advise against the handshake method regardless of the subject matter, we specifically note that licensing agreements exist to ensure that both the creative entrepreneur and the client understand their relationship to each other, as well as what rights they each have respectively in the final product (the “deliverables”).

This concept is best illustrated via hypothetical. Let’s say you are a graphic designer commissioned to create a patterned graphic specifically for a company’s ad campaign. Let’s also assume you produce and sell the company this graphic for a flat fee and that the details of any negotiation between you are limited to an invoice or, even worse, a handshake. Several months later, said company decides your work is so effective and thus valuable that they develop an entire product line based on your patterned graphic. Boom. Your flat fee ad campaign work turns into a long-term growth driver for the company. While the renewed purpose for your work might be flattering, as your design will be widely recognized by the public, you realize how hard it is to classify flattery as income.

The truth is your original fee represented a fair and reasonable price for the ad campaign contemplated. What it did not represent was fair and reasonable compensation for the development of a highly profitable product line based on that same pattern. The value of your work product, among other things, ultimately depends on its intended use. In this case, where the company will be using the work and getting its value indefinitely, the ideal scenario is for you to either (1) price in the long-term value; or (2) to have some recourse for a client misusing or repurposing the work for a value disproportionately greater than the original negotiations. However, because the only paper trail you have here is at most an invoice, you have transferred the rights to this graphic completely. And because you transferred the rights to the graphic completely, you likely will have no legal recourse. This is why the concept of licensing is so important.

As we have evangelized in the past, written agreements do the heavy lifting for you! If you had put your anticipated work for the company in writing, that licensing agreement would have limited what the company could do with the graphic without your permission. Put another way, if you had licensed the company to merely use your graphic, rather than selling it to them outright, you would still have rights in the deliverable. And with rights come recourse! Here are a few things you should be sure to include in your licensing agreements to protect your work and your long-term income.

(1)  Scope of the Work and of the License. To what end does your client get to use the work you created on their behalf? Are they paying for complete ownership? If not, the scope of use should be broad enough to give the client fair use of the deliverable, but not so broad that you lose the ultimate ownership rights without being fairly compensated for them. At the end of the day, it is your decision as to whether ownership over your work product is as good as money—not the client’s. Consider, too, defining the boundaries of how much work you promise on the front end in delivering the ultimate product. Most designers have horror stories related to clients demanding endless rounds of edits and tweaks that simply render the relationship cost prohibitive in the end.

(2)  Payment. Will there be a one-time licensing fee, or will it be made in installments such as monthly lease payments, or royalties? What is the method of payment? When is payment due? What is your recourse for non-payment? What if the client changes their mind after you’ve done significant work on their behalf? Entrepreneurship is tough enough without the stress of tracking down your due compensation. Having a form agreement addressing all these scenarios can give you great confidence in running your business and some flexibility depending on each client’s circumstances and needs.

(3)  Term of Use. How long does the client rights to use the deliverable? Is it limited to time or frequency of use? This information should be discussed early on as to make sure you are both on the same page.

(4)  Warranties and Indemnification. Give your clients peace of mind! Making warranties to a client is a fantastic way to gain a professional reputation and rewarding referral network. Letting a client know in writing that the product sold is of your unique design, and that if anyone challenges their license use that you will defend them against that claim, is great way to add significant long-term value to your business.  

Of course, this list is not exhaustive by any stretch. There are a number of other provisions that can and should be included to complete the “airtight” licensing agreement. But these aforementioned provisions seem to have the biggest effect on the day-to-day engagements of the up-and-coming designer. Remember, the work you create is yours until you decide otherwise. Your product is your reputation and your legacy in the long run. The commitment to protecting that is just as important in insuring your success as the work itself. We want to make sure you get there and Carolina Craft Legal is committed to doing our part to serve the community of creative entrepreneurs. If you have any questions, just reach out. We’ll be happy to help.

Until next week. Cheers!