There aren’t any awards for being “advertising agency of the year” on how agencies handle legal issues. The truth is, many agencies just don’t worry about compliance and contracts until something goes wrong. Although I won’t be naming the “Legalease Agency of the Year,” here are some of the key things I would consider if I were.
Legal Review Agencies should have a system in place to make sure that all material produced by the agency is reviewed by the agency’s lawyers before it is produced. Although the client is typically responsible for some of the compliance issues, agency/client contracts (and the law) place many legal obligations on agencies, such as to ensure that the material supplied by the agency does not violate another party’s copyright or right of publicity. Having a good system in place will help ensure that you get the info you need to comply with your contract, to protect your client and yourself and to make informed judgments about any risks. With lawsuits as common as they are–and with insurance costs skyrocketing–one mistake can be very costly.
Limited Rights Some clients expect that they have unlimited rights to use everything that is produced by the agency. Of course, it is common today for agencies to produce material that includes stock footage, union talent, licensed music and other material for which the agency has only obtained limited rights. Whenever you do this, it’s critical to communicate the specific limitations to the client and get the client’s approval. Otherwise, the client may feel free to use the material in additional territories, for additional periods of time or even in new executions. If the client hasn’t agreed to the restrictions, and then gets sued later on, the client may hold you responsible.
Client Expenses Media and production expenses, incurred on behalf of clients, can add up fast. One of the greatest risks faced by agencies is that the agency will spend, or commit to spending, significant sums of money on behalf of a client and then will be unable to collect that money from the client. If your client goes into bankruptcy, for example, unless you have a good plan in place, you may find yourself in financial trouble as well. Although there isn’t space to talk about it here, there are legal and financial controls your lawyer and CFO can (and should) put in place to help protect the agency.
Compensation The business is changing, and the way agencies are being paid is evolving. Commission-based compensation is no longer the rule. A labor-based model–where agencies get paid based on the costs of servicing the business and an agreed upon profit margin–is favored by many clients. The question you have to ask yourself is whether you are getting fairly compensated. Should you benefit if a campaign is successful and a client’s sales increase? Should you be paid less if it takes you one week, instead of four weeks, to come up with the winning idea? Should you be compensated differently if you develop new business or product ideas that translate into new revenue sources for the client? Should you share in the profits generated by a branded TV show that you develop? There is no one right answer to any of these questions, and reasonable people can disagree, but the first step is thinking about the true value of what you provide–and then trying to make that part of compensation discussions with the client.
Although I don’t have a trophy to give away, if you make addressing these issues a priority in 2007, the benefits in reducing your risks–and increasing your profits–should be an even better reward. Happy holidays.
This column presents a general discussion of legal issues, but is not legal advice, and may not be applicable in all situations. Consult your attorney for legal advice.
Jeffrey A. Greenbaum ESQ. is a partner at Frankfurt Kurnit Klein & Selz, New York. To suggest a future column topic, e-mail him at jagreenbaum@fkks.com
