ALERT – Branding Design Contracts – Less Than You Bargained For

Graphic designers appear to have changed the terms of their contracts en masse and unsuspecting small business owners are paying the price!

In the days of old, a small business owner could contract with an unknown or not-well-known graphic designer for a logo, color scheme and various marketing materials like a brochure or flyer design, and the small business owner would own the work product and could do whatever they wanted with it – modify it, change it, and most importantly, use it for “commercial purposes” as opposed to “personal use only”.  But things have changed…

the “Branding Design Contract” has significantly changed

Today, many graphic designers seem to have changed tactics and now incorporate language into their customer contracts that makes the graphic designer the owner of the work product and associated copyrights, and only grants you (the small business owner) a mere ‘non-exclusive license to use’ the work product subject to various limitations like ‘personal use only’. Of course there are numerous problems with this so-called license:

•  often, the contract does not indicate if the license is irrevocable, and therefore it may well be revocable, especially in the event of a perceived breach of the contract, and
• it does not indicate that the license is assignable (e.g. if you sell your business or business assets to a 3rd party, you may be unable to transfer your license to use the work product to the buyer and would be stuck trying to convince the designer to modify the terms to permit assignment or reduce the purchase price by the buyer’s cost of rebranding.

The terms “commercial use” and”personal use” also seem to be common terms used in these “Branding Design Contracts” but without any clear definition of what they mean or much understanding from either party as to the implications of their use.

In a general sense, “commercial use” allows a small business owner to use the work product in any reproduction or for any purpose that is marketed, promoted, or sold and incorporates a financial transaction. Most small business owners that pay a graphic designer for a company logo, color scheme or a designed brochure likely believe they are purchasing, and thereafter own, the work product they paid for. 

However, many of these “Branding Design Contracts” provide the small business owner with only “personal use” rights. Personal use rights are generally understood to limit use for private purposes only, such as learning or entertainment; and not for commercial purposes. Whether or not this would be enforceable against a small business owner that clearly purchased the logo or design for use in its business is certainly open to interpretation — but a small business owner who is at the point of making that argument in court has already lost. The point is to avoid signing the contract with those unfavorable terms.

Many of these “Branding Design Contracts” provide the small business owner with only “personal use” rights. Personal use rights are generally understood to limit use for private purposes only, such as learning or entertainment; and not for commercial purposes.

The concept of a graphic designer retaining ownership of work product is not new — but until recently we at TJL have rarely seen it done by graphic designers of ‘no notoriety’.

Small business owners who sign these branding design contracts without understanding the terms they have agreed to could be signing themselves up for costly future litigation or the cost of rebranding without incorporating the designer’s work product. After years of developing goodwill and brand recognition, that is a cost most small business owners could do without. But, what often happens is the small business owner takes the logo file and puts it on their website, business cards, letterhead, social media, and vehicles (all for commercial purposes), and then places it prominently in a web-video advertisement or social media video post. When the graphic designer discovers this “use” that exceeds the limited license granted under the contract, the graphic designer sends the business owner a demand for thousands of dollars in additional fees pursuant to the terms of the contract. When the fees are not paid, a lawsuit is filed. These lawsuits can also involve copyright infringement claims, and if the designer registered the copyright, the statutory fees can be significant – not less than $750 or more than $30,000 per infringement.

Small business owners should always have a competent attorney review any contract, before signing, and this scenario only reaffirms that. The business lawyers at The Jacobs Law LLC are experienced in drafting, reviewing and revising business contracts, and we often provide reasonable flat fees to review and advise a client on the terms and conditions of a contract.

If you are a small business owner in need of contract review services, contact us today at 1-800-652-4783 or email Office@TheJacobsLaw.com.

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