Ultimately, the value of the advertising agency process is in the intellectual properties created and in the commercial outcomes, those properties deliver. It is just a pity that agencies continue to be paid not for their IP or the results they contribute. Instead, they are paid for the time and cost of what they do. Most of this is in the management of the process and the production of the tangible output of their activities.
This anomaly means that buyers, marketers and advertisers can increasingly focus on the least valuable component of the relationship and focus more on where they see their budget being spent, which is on the cost of agency people, along with media and production. This attention on cost means that real value is diminished to the point where some may think that an agency’s ideas are literally worthless.
Take this recent scenario. You run a billion-dollar global business. Each year you invest millions of dollars in your advertising. But when it comes to the value of the ideas you elicit from your agencies, you are only willing to pay a few thousand dollars for all that they produce. Does something sound wrong with this?
That is what agencies were faced with when a global client went to the market to select a new agency soon after the appointment of their new Chief Marketing Officer. Agencies were invited to tender, but first, they had to sign the company’s standard non-disclosure agreement. Except it was not so standard. There, buried in the clauses was one titled New Material.
New Material stated that “ownership of all rights in and to the Confidential Information and all New Material developed by the Supplier for and on behalf of the Company will be the exclusive property of the Company”.
It also said that “the Supplier’s role in the development of such New Material shall not be deemed to confer on the Supplier any rights in or to such New Material”.
Except it then went on to say, “the Supplier agrees it shall assign the copyright in respect of any such New Material to the Company, in writing”. This, in itself, appears to suggest that the Supplier does have rights to the New Material, which they will agree to sign away.
The agencies were shocked. On inquiry with the client, they were told it is standard company policy and not negotiable. The company would pay a pitch fee, of an undisclosed amount. But if they wanted to be in the tender process they would have to sign.
This is the state of the industry when it comes to intellectual property.
First, if I went into a store and asked to try their product and only pay for it if I liked it, I am sure the store manager would be outraged. But if I then said I wanted them to give me their recipes so I could make it myself at home, they would throw me out of the store.
Of course, there is nothing stopping the global client from demanding they own the agency’s intellectual property. And while this behaviour may look less than ethical, the fact is it is often driven by concerns around legal risk.
We have had this conversation with many advertisers and their legal advisors. The use of these clauses in agreements is not to own the agency’s ideas so they can get another agency to do the work cheaper, but it is related. The concern of the lawyers is that in the pitch or tender process an agency could be tempted to make a claim of IP theft if both agencies come up with the same or a similar idea. It has happened. In having all agencies sign away their Intellectual Property rights upfront, this risk is eliminated.
There are, however, a few other ways to avoid this circumstance.
- Avoid having agencies do speculative creative as part of the pitch process. If there is no IP created, then there can be no dispute over IP theft.
- If you are using speculative creative as part of the process, avoid a brief that is prescriptive and narrow, so agencies are less likely to come up with the same predictable ideas.
- Have the agencies present IP with a date and time of creation on any work, so that if disputes arise there is evidence of copyright ownership.
From the legal advice we have been given, any dispute over intellectual property rights arising out of a pitch can be easily defended based on the evidence of the work being presented by each agency. Therefore, using IP assignment clauses could be considered overkill to solve a relatively small risk. So, it could be an indication that the company whose business you are pitching for simply wants your intellectual property on the cheap. Buying all an agency’s pitch ideas for a nominal pitch fee merely devalues the work of the agency.
We do not require agencies ever to assign their Intellectual Property as part of the tendering process. In cases, where an agency had presented an idea or concept the client had liked, but had not been the successful agency, we have advised the client to negotiate to buy the idea from the agency.
Our Contract Review service is based on a mutually equitable remuneration model which ensures that your agency supplier contract is structured appropriately.
