In the startup tips series, both the need for intellectual property (IP) protection and foundational protections, like employment and contract agreements were outlined. However, I would like to shift gears now and start a series of lessons learned or in some cases, IP horror stories. If you are interested in contributing please see below.
I spoke with New Orleans lawyer, Andrew Legrand of Spera Law about an interesting cautionary tale concerning an artist who had developed a logo for a small business about ten years prior and the business that paid for it but did not have the rights assigned. In other words, you do not necessarily get what you pay for. There will be a theme in our stories where clients either do not know that they need to identify and protect their IP or they consciously decide that it’s not worth the time or money.
Mary: How did this all start?
Andrew: A decade ago, the artist was paid a few hundred dollars for the logo, but never signed an assignment of her copyright. Like many small business owners, I assume the business owners at the time did not have an attorney, and simply weren't aware that that was an issue.
When the artist approached us, ten years later, that business had about ten locations and was worth something in the neighborhood of $50 million. The business was also looking at rapid expansion and was working with a New York banker to secure additional funding.
Mary: Ah yes, fundraising questions often undercovers problems with IP ownership. What was the impact?
Andrew: As part of the due diligence process, the banker realized that the business had never received an assignment of the logo and the logo was a key part of the brand identity of the business itself. In order to move forward with the financing, the banker wanted the owners to individually secure the rights to the logo. This meant that if they were going to buy the logo, they were going to do it with their personal funds, not business funds.
Mary: The mistake now is costing the owners personally and they are not negotiating from a position of strength.
Andrew: Correct. The owners then approached the artist and made an offer that was about ten times higher than what they had actually paid for the artwork when she first designed it. And, that’s when she contacted us. Over the course of the ten years, the relationship between the artist and the business owner had deteriorated. They could not have constructive conversations without mediators.
This led to our client requesting a significantly increased amount in the compensation. Our client also argued that she created the logo for a one-location business, not a regional business.
Mary: Did your client, the artist, own the copyright for the logo?
Andrew: Unfortunately, she had not. Our client could have been in an even better position herself had she filed the copyright for the logo. The lack of a registration opened the door to the business making the argument that she had issued an implied license. The business also had the income and the wherewithal to pursue litigation. Our client did not.
Mary: What was the final result?
Andrew: In the end, this small business wound up paying a significant fee to buy the rights to the logo that meant so much to them both personally and as a business. Our client also benefited but would have been in a much better position if she had copyrighted her work when she first created it.
Both of these clients could have saved tens of thousands of dollars by consulting with a lawyer on a regular basis. Any good business lawyer would have spotted the issues here before it came to heated discussions, and helped avert the issue. Unfortunately, both of these parties waited to get advice, and they paid for that.
Well said, Andrew! Business should ensure that the IP and all the associated rights are transferred when they pay for the work. And creators or artists should protect their work with proper registration.
We are looking for lawyers or small businesses who have experienced success or failure with intellectual property who can share their lesson learned to benefit others. We will protect the identity of those involved and do not require actual clients names. Please reach out on twitter @maryjuetten or by email at info@traklight.com. #onwards.
