In my firm’s long association with designers, my most frequently-asked question is, “Can my client use my work without my consent if I haven’t been paid for it?”.
Many designers are asked for a “free pitch” in the hope of gaining a good contract, only to find out later that the potential client has used the ideas through a competing studio. Does the law give you any protection in this circumstance?
The Copyright Act says that copyright in a work can’t be transferred to another person unless that transfer itself is in writing and is signed by the owner (normally the author) of the work. This bare fact may lead to the assumption that your potential client in the above situation has no right to use the work but, unfortunately, it is not that simple.
Set limits around the use of copyright
In law, copyright is an ever-divisible right. It can be given exclusively to one party or non-exclusively to a multiplicity of parties; it can be limited in time, in the media in which it can be used and geographically. For example, your artwork can be used by your client for a period of 12 months in designated advertising in the State of Victoria. Any use by the client beyond these limitations is an infringement of copyright. Indeed, most clients will request a full assignment of copyright and, as legal advisor to a designer, I would resist that request unless adequate compensation is paid to the designer. Unfortunately, in my experience, I have found the hardest thing for a designer to do is say “no” to a client and they will often give away their valuable rights for an inadequate fee.
But getting back to our “free pitch”, whether or not the potential client has the right to use any part of your work will depend upon such things as what written or verbal terms were agreed between the parties and the extent of usage that the client has made of the works.
Use written terms
In as much as it may trouble the fledging designer to be firm with a potential client, it is essential that any work produced (whether it be for a free pitch or otherwise) be subject to specific, written terms which have been agreed between the parties. The client doesn’t necessarily have to sign the terms; if you send your terms to a client by email and say you will prepare designs on the basis of these terms, if a client merely accepts this, generally a court would agree that they are the terms of the relationship.
Many of you might not realise it, but lawyers were invented because people hate going to court! And you can avoid going to court by making sure that you have proper terms of business. Whether you are just starting out or are well into a business cycle, you should look closely at your legal relationship with clients and if you are unsatisfied in any respect, particularly in relation to your most valuable right – your intellectual property, you should seek appropriate advice.
Standard terms are acceptable
It never ceases to amaze me that many designers think they need to have a different set of business terms for each job, but that is not the case. All of our clients have developed a standard set of terms with a few variables to suit alternate purposes (e.g. how you handle copyright). Having standard, studio-specific terms can be a very cheap investment considering the prospective return and utility they provide for future negotiations with clients.
When designing branding for a client, don’t rely too heavily on the use of a particular colour as a brand, especially if that colour might be functional rather than decorative.
Functional colours (such as yellow for discount services, black for heat absorption, or khaki, brown and green for camouflage) are less likely to distinguish one trader’s products or services from another’s, and this could leave your client open to ‘copycat’ competitors.
Traders may legitimately want to make use of similar colours to take advantage of their functional attributes, which may bear some resemblance to each other without infringing each other’s rights (think of the colours used with, Bing Lee and Harvey Norman (blue), or the black and white of major department stores, or the yellow of discount chemists).
In fact, even if another trader deliberately borrows the colours, features or ‘trade indicia’ of a rival, to such a degree that consumers might actually be confused as to the identity of that trader, it may still not be enough to support a claim for misleading and deceptive conduct.
When Chemists Collide
The owners of Chemist Warehouse recently discovered this to their detriment when they brought claims of misleading and deceptive conduct and trade mark infringement against Direct Chemist Outlet (DCO), alleging DCO had used ‘get-up’ (including heavy use of a garish yellow colour), allegedly causing consumers to think DCO stores, their catalogues and websites were those of Chemist Warehouse, or associated with it.1
However, in a lengthy judgment handed down in March 2015, the Federal Court rejected Chemist Warehouse’s claims, deciding that, although DCO had ‘undoubtedly copied many of the ideas and concepts’ of Chemist Warehouse, they did not do so with the an intention to mislead and deceive, or to pass off their stores as being associated with those of Chemist Warehouse.
Further, the Court decided that the ‘get-up’ of Chemist Warehouse stores was not sufficiently similar to DCO stores, particularly since both companies had made prominent use of red logos which looked so different that the Court held consumers would not be misled as to the identity of the stores.
The Function of Colour
The Court noted that colour schemes may play an important role in the marketing of a product or service and it’s possible for a trader to establish a reputation in things other than names and logos, such as the colour purple for some famous chocolates!
Once a trader develops a ‘secondary reputation’ in its trade indicia – meaning the trader can be identified independently through particular colours or features – the adoption of those indicia by another trader will be regarded as misleading or deceptive by a court, unless that trader can show that it has adequately distinguished its own goods and services by use of some other indicia than the mere colour in question. If, for example, Chemist Warehouse had developed such a reputation in the colour yellow, the result may well have been very different.
What does this mean for you?
Unless you are absolutely sure that your client’s colours have acquired a ‘secondary reputation’, you should be careful not to over-emphasise the use of colour in your client’s branding, and rather rely on a distinctive logo or name to distinguish your client’s brand.
If you have any doubts, contact Finn Roache Lawyers for advice on the best strategies to protect your client’s brand.
1 Verrocchi v Direct Chemist Outlet Pty Ltd  FCA 234
As a copyright lawyer, I’m often asked by designers about ownership of their work. Does the client own the work or does the designer hold the rights? It’s complicated.
I created it – isn’t it mine?
The short answer is ‘not always.’ Leaving aside any licenses granted over the work, if you create a work (which for now we will assume is covered by the Copyright Act 1968 (Cth)), then you are the ‘author’ of that work. Ordinarily, this also makes you the owner of any copyright in the work.
However, there are exceptions to this when you are an employee. Under the Copyright Act, if you create a work as part of your employment under a contract of service or apprenticeship, then your employer owns the copyright in that work.
There are two circumstances where this isn’t the whole story:
- If you work for a newspaper, magazine or periodical, then although your employer owns the copyright (as set out above), there are exceptions in relation to the reproduction of the work for very limited purposes, such as reproduction for inclusion in a book, or reproduction of a hard copy facsimile (e.g a photocopy) of the work.
- Alternatively, if you have agreed to be paid to take a photograph (for private or domestic purposes), paint or draw a portrait, or make an engraving,then although the person who commissioned the work is the owner of the work, if they told you (or implied) why they wanted the work to be created, you can stop them using the work for any other purpose other than for the stated (or implied) purpose.
What about my contract?
This position can also be modified by the terms of any contract you agree to. For example, a lot of employment agreements contain clauses like this one:
The Employee agrees that COMPANY is the sole and exclusive owner of all Intellectual Property created or conceived, in whole or in part, by the Employee in the course of his or her employment, howsoever and wherever created or conceived, whether solely or jointly with others and whether during office hours or otherwise.
You have to be careful of any contract containing a clause like this, as it will change the ordinary position under the Copyright Act and may result in you losing rights you might otherwise have had over your work.
On the other hand, you may want to use a contract to ensure you keep some (or all) rights over your works. For example, you may wish to negotiate terms in your contract that allow you to continue to use anything you create in a portfolio, so you can show it to future employers or clients without infringing the copyright in that work.
Alternatively, you may want to retain ownership over some works (for example, for something you began working on before you were employed, but wanted to keep working on during your employment), and only let your employer use that work in certain ways.
These rights can all be included in the contract between you and your employer (though any agreement that assigns (or transfers) copyright must be in writing and signed by, or on behalf of, the person assigning their rights).
Some Important Questions
In any situation where you are creating works for another person or a business, to help protect your intellectual property, you should ask yourself a few important questions:
- “Am I an employee?” (ie, am I creating a work as part of my employment under a contract of service or apprenticeship?)
- “Do any exceptions about newspapers, magazines, photos, portraits or engravings apply?”
- “What does my contract say?” (ie, does my contract override the general legal position?)
If you aren’t sure of the answers to any of these questions, then you may not be sure who owns ‘your’ work, or what you (or they) can do with it!
We Can Help
We are always ready to help AGDA members understand their Intellectual Property rights, to review the specific terms of any contracts, or to assist in drafting clauses that can be used to ensure they keep control of their work. For more information, simply email Chris on email@example.com or give us a call on (02) 8297 1100 for a free initial consultation.
This article does not constitute legal advice, and is not intended to provide a comprehensive statement of the topics discussed within. This article does not create a solicitor-client relationship between you and Finn Roache Lawyers. You should seek legal and/or other professional advice before acting or relying on this article.
“There’s this graphic artist who says I can’t use my design on my website!” yelled my client down the phone, early one Monday morning. He wanted a quick fix, because his website was going on-line the following day. “I’ve paid this bloke all he’s entitled to,” my client went on, “but he’s now saying that the payment wasn’t enough to cover the website.”
I asked my client to fax me copies of any documentation he had with the graphic artist, as I needed to see what the contract between the parties said about copyright, because this was what the artist was really on about.
What is copyright?
Copyright is the right to reproduce one’s own creations and to prevent others from doing so. It covers such things as literary, dramatic and musical works, films and sound recordings, as well as (in our case) artistic works.
My client had commissioned his graphic artist to come up with a new logo and artwork for his restaurant. Examples of the rather elaborate work duly arrived, together with a copy of the contract and a note from my client to say that he had paid the artist for the designs and, so far as he was concerned, he was entitled to use them any way he chose. There was also a copy of a letter from the artist saying that his contract with my client didn’t cover usage of the designs on any website.
Check your contract
With some exceptions, it is the general rule that copyright resides in the author of a work unless it is transferred in writing to another party. From a quick glance at the contract, I realised the artist was correct in what he said, because the contract specified that all copyright in the work remained with the artist, but the client had a licence to use the designs in specific areas for an unlimited period. Those areas involved such things as wine lists, menus and fixed signage on the restaurant premises, but most tellingly, excluded all other forms of advertising or promotion without the designer’s written approval.
I was surprised that my client had signed off on such a restrictive copyright clause and I asked him whether he had he read the contract. He replied that he didn’t think he really needed to, because it was just the “normal sort of contract,” whatever that means!
What followed in my discussion with my client was a steep learning curve for him. I explained that contractors who actually create literary or artistic works, such as graphic artists, architects, draughtsmen and copywriters can’t be treated as ordinary tradesmen, because what they have control over is a very valuable economic right – that is, the right to prevent other people from copying their work without their approval.
Consider how the design work will be used
“But hang on,” my client interjected, “surely the law’s on my side! I paid him his money and it was a big amount. It’s not up to him to tell me what I can’t do with the work!”
I had to demur and said that, unless my client could prove that he was actually misled in some way by the artist, the contract (however fine the print) must stand.
So the big lesson for all of us is that the question of copyright must be adequately dealt with in any contract concerning works in which copyright resides. Copyright infringement cases go to the Federal Court regularly and the Court’s sanctions can be quite punitive. Not only can they grant injunctions preventing use of a particular work, but they can also order damages and legal costs to be paid to an aggrieved party.
If anyone creates any material for you, be it a menu, a video or audio promotion for the restaurant, or a promotional spread in any media, including a website, the ownership of copyright, and your right to use it, must be dealt with up-front.
Independent contractors can retain copyright in a contract
There is a distinction between work created by an employee, where an employer normally owns the copyright, and material commissioned through an independent contractor. The latter was the case with my client and any contract with the graphic artist should have specifically dealt with the areas in which my client wanted to use the designs and logos.
As a lawyer, I am not new to this area of law. I have been honorary solicitor to the Australian Graphic Design Association for a number of years, and I can tell you that disputes between designers and their clients over copyright continue to be the most vexing of all.
Unfortunately, many designers’ contracts don’t address the issue of copyright at all, but even if they don’t, there is always an implied licence that the client has the right to use the material for the purpose intended. But the hard part is proving what that purpose is and what media was contemplated at the time.
Whatever the downside, both parties should know what they’re getting from the start. From a client’s point of view, it’s better to obtain a total assignment of copyright from the author of any work, which will usually involve payment of a larger fee than perhaps first suggested by the author, but it does overcome any future problems about who has copyright in what.
If an author is not prepared to give a total assignment, you have to decide in what areas you want the rights to the work and they should be spelt out in writing, signed by the author.
Regarded by many as one of the most mystic realms of the law, there is nothing particularly difficult about copyright. But it is an area in which a specialist should be consulted, because of the considerable financial ramifications ignorance of it brings.
More often than not, if I have a client purchasing a restaurant, they have a silent partner in the wings with deep enough pockets to satisfy the voracious appetite that restaurant businesses, at least in the initial stages of development, tend to have.
In situations like this, the first thing I do is tell the silent partner to seek their own independent financial and legal advice, and carefully consider the pitfalls.
Don’t judge a book by its cover
Don’t rely on your proposed partner’s reputation. Even if you know him or her well, make your own proper enquiries, or better still, have someone independent do it for you. And, remember, truism that it might be, friends and business don’t mix.
A picture isn’t worth a thousand words
By the same token, don’t substitute your partner’s enthusiasm for level-headed and sound advice concerning the proposed business and its prospects of success. Possibly, you won’t have been involved in a restaurant before, so seek advice from someone who knows.
Consider the equities
Don’t let the first flush of excitement for a new venture cloud your judgement about what you should be getting out of the deal in return for your financial input. In my experience, silent partners put up most of the cash or security in return for their partner’s labour. That labour always gets paid for, but not so the poor financier.
What about the chef?
The best manager in the world isn’t going to attract customers when the food’s not up to scratch. Up-market restaurants, particularly, need a good chef, but employing and keeping one can be a monumental headache. I’ve found the happiest results occur when the chef owns a piece of the action or is on a performance incentive to acquire some of it.
Give a lot of thought to the how you want to structure your relationship with your operating partner. There is a wide range of options, from partnerships through to trading trusts, and to choose the one to suit you best you’ll need good professional advice. The particular structure you choose might also depend on the differing inputs of the parties. Decide early on the duties and responsibilities of each party and enshrine them in some form of agreement.
Think twice about personal guarantees
Business culture is changing in regard to PGs, so don’t just assume you have to give them to start up and to stay in business. Of course, everyone still asks for them, but get into the habit of saying “no”. It may not work with the bank, but it might with other credit providers, landlords and suppliers.
Quarantine your non-business assets
Giving personal guarantees will expose any personal assets to the recipient of those guarantees. Depending on your business structure, you might also be exposing your assets to other creditors of the restaurant. Before you start in business, seek proper advice on ways and means of shielding, or lessening the exposure of, your personal assets from creditors.
You’re likely to end up a director of a company involved in the new enterprise. Nowadays directors have substantial, and often onerous, obligations to shareholders, co-directors, employees and creditors. Some of those obligations are cast in terms of personal liability; for example, directors can be personally liable for tax not remitted by a company. And you can’t avoid the problem by merely not being a director, because the Income Tax Act, for example, regards a director (appointed or not) as “any person involved in the management” of a company, and if you don’t want to be involved in the management of the business in which you’ve invested your hard-earned dollars, you want your head read!
Silent partner doesn’t mean ignorant
Long gone are the days when one could plead lack of knowledge as a “sleeping” director as a defence. Ignorance is not a defence when, for example, something should have put the director on notice that all was not right with the company and an enquiry should be made. Director or not, you must be proactive in the affairs of your business. You owe it to yourself, let alone all those others who might one day want to sue you for your indolence.
I have purposely not touched on the usual “nuts and bolts” issues in buying or setting up a business, but insurance should be dear to every silent partner’s heart! It is your dollars at risk, so make sure they’re protected – with proper insurance on the business and its tangible assets, including public liability. Also, don’t forget life and income replacement cover for all the players, including the chef, and, last, but not least, directors’ indemnity insurance.
I trust I have given all you potential silent partners enough food for thought (so to speak). In a word, I wouldn’t be too silent about it, for you know what happened in Silence of the Lambs…