There are often discussions in the industry regarding the charging of fees for intellectual property. Most of the contracts we see have the agency assign their IP on the payment of the project or retainer fee.
The issue is that if the retainer or project fee is based on the agency resource cost by the overhead and a profit margin, where is the value of the IP represented?
The concern for most advertisers is that if they start placing a value on IP, where will it end? They have paid for the “work” so why should they be potentially held to ransom to pay for the IP?
The fact is that this approach is not always fair and often not sustainable for long term productive relationships.
Here are two examples where IP could be valued and make the agency / client relationship more equitable.
Case 1 – Local work used overseas
A local independent agency creates a campaign for their global client. A local production company shoots the campaign here.
The campaign is a huge success and the advertiser hands the concept, which they own under the contract, to their head office to run the campaign overseas. The head office gives the campaign to their overseas rostered agency who flies to Australia to shoot new versions.
The same local production company charges three to four times as much so they make more money. The overseas agency gets paid for producing the overseas campaign. The client gets a successful campaign for the rest of the world, for no extra concept fee. The only one to not get paid is the local agency.
Case 2 – Created here, produced there
A client goes to pitch and awards a highly creative agency the account for coming up with a great strategy and idea. Six months after the development of the campaign the client begins moving the bulk of the production work from the agency to a “cheaper” design house / production facility.
While not terminating the successful agency, within 12 months they are no longer doing any more work for the client.
With agencies often taking six to 12 months after appointment to recoup the cost of the pitch, the successful agency is out of pocket.
Is there a better option?
Both of these cases are possible because currently most agency agreements pay for the production of the idea and not the value of the idea itself.
On payment of the concept, the agency assigns their copyright to the client.
While this is considered legally “neater” for the advertiser, it is hard to justify the fairness.
Instead of assigning the copyright, the agency provides the client with an exclusive licence within the confines of an agreed geography and for the term of the agency / advertiser agreement. If at the end of the agreement, the advertiser wishes to continue to use the IP created by the agency during the term of the agreement, they pay the agency a pre-agreed amount for the assignment of the copyright.
This recognises the value of the IP created by the agency, but does not use the rights of the IP to hold the client to ransom, with an agreed set of conditions up front.
We have successfully implemented this with a handful of clients, interestingly usually those who have long terms relationships with their agency partners (more than ten years).
What are your thoughts on this? Is there a way to make IP work in a more fair and reasonable way to recognise its value in client agency relationships?