So you want a new logo for your business. That’s great! Instead of hiring a design firm, you decide to hold a contest so amateur designers near and far can propose logos. Maybe you’re even going through a website, such as 99designs.com. It seems like a win-win situation: your company gets a plethora of ideas that you wouldn’t get with one designer and amateur graphic artists get a piece for their portfolio and a chance at major exposure! What could go wrong?
Actually, a lot.
While at a very superficial level design contests seem like a good idea, any analysis or evaluation will start to turn any legal counsel’s stomach. Here are just a few issues:
1. It’s probably an illegal contest.
As profiled by my colleague Keith Finch in his latest article, running a contest opens a huge can of worms. And guess what? Those rules apply to ANY contest, including one on logo design. Things get very complicated, especially if you’re working with a contest spanning multiple jurisdictions, as internet logo contests usually do. But wouldn’t a website whose sole purpose is to run logo contests do all of this for its users? I’m afraid not.
To run a contest legally, you’ll need to shell out thousands in legal fees for correct “Terms and Conditions” written in exactly the right size and type of font required by the contest-governing overlords; you’ll have to put up cash bonds in Florida and New York; you’ll need to obey state and national consumer gaming laws meant to protect consumers from not-so-honest award disbursement, and more. My hunch is that it’s more financially prudent to hire two or three designers.
2. You [probably] won’t own the copyright.
As lawyers, we see this ALL THE TIME: A company hires a designer/ design firm to make its logo or rework its branding. The designer creates an awesome logo. The company is thrilled. Both parties go on their merry way.
The company doesn’t own the logo.
But the company paid for it! Shouldn’t that mean it’s a work made for hire and the copyright automatically belongs to the company?
Actually, it doesn’t. A work made for hire only applies when the designer is an employee of the company. An independent contractor or freelancer is NOT. This situation is legally identical to picking a logo from a design contest. The designer is not an employee—and arguably not even an independent contractor—and therefore no transfer of copyright occurs. In this situation, you need a separate well-drafted copyright transfer agreement, which doesn’t come with most logo competitions.
This means that every time you use, print, copy, reproduce, or alter that logo, you’re committing copyright infringement. Why does this matter? Because at any time, that designer could decide he wants to invoke his rights and prevent you from using that design, and in essence hold you captive until you pay some sort of ransom fee. If he’s registered the copyright in the mark, there are even treble damages and attorneys fees you could have to pay. It’s big money that could cause a huge headache, just for forgetting to get a copyright transfer agreement signed.
3. The design could be a copy.
When we draft design agreements, we make sure there is a portion of the contract that ensures the deliverables are original, non-infringing works. This is because a client using the designs could actually be held responsible for an infringing logo created by a designer. This is a huge problem on logo contest sites, and there is no way to ensure localized design contests don’t run afoul of these rules as well.
We like to add indemnification clauses to our client’s designer agreements that make the designer responsible for indemnifying (e.g. paying for the cost) our clients’ legal fees or costs of defending a suit for copyright infringement if the deliverable’s design is misappropriated.
Even a quick look at design contests presents myriad issues. You’ll get more bang for your buck hiring one or even two designers to produce and design deliverables you need. If you do decide to run a contest, make sure you talk to your friendly neighborhood attorneys who can ensure you’re not slapped with fines or even possible jail time for running an illegal lottery under federal and state guidelines. We’ll help you out!
(A version of this article previously appeared in the Valley Business Front.)
The CEO’s voice was controlled, but I could sense the panic underneath. He was about to crack. It sounded almost like he might even start crying.
“We have paid a total of more than one hundred thousand dollars for that web site over the years!” he said, his voice quavering with anger. “And now the developers won’t even give us a copy of it. I want you to sue them tomorrow. I want justice!” he said.
“Whoa, whoa, OK, yes, justice, of course,” I said, “but before we start a lawsuit, let’s figure out what they’re thinking, from a legal perspective. Do you have a written contract with this web site company?”
He did have a written contract. He sent it to me. It was about four pages long and mostly detailed all the various types of work that the developers were supposed to do on the web site.