Legal protection for today’s agency, with Sharon Toerek.

Speaker 1 (00:00):

Hey, everybody Drew McLellan here. Before we jump into the episode you are about to listen to, I wanted to make sure that you knew that we are doing open mic webinars and they are available to anyone in the world, just head over to the Agency Management Institute.com/ask drew, and you will see the dates and times for this month and next month. And we’ll talk about anything you want to talk about – agency operations, COVID, whatever it is that is on your mind. I’m happy to answer your questions and everyone else on the call shares as well as asks questions. So it’s really a round-robin of learning for everybody. All right. I’d love to have you there. All you have to do is register. You can attend live, or just get the replay after we record it. Okay. Now here’s that music that you know and love.

Speaker 2 (00:51):

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build A Better Agency podcast presented by HubSpot. We’ll show you how to build an agency that can scale and grow with better clients, invested employees, and best of all, more money to the bottom line. Bringing his 25 plus years of experience as both an agency owner and agency consultant to you, please welcome your host, Drew McLellan.

Speaker 1 (01:24):

Hey, everybody Drew McLellan here. Welcome to another episode of Build A Better Agency. One of the topics that always comes up when I’m working with agencies is around the whole issue of legal protection, especially as we embrace the idea of contract labor and freelancers, and we’re creating more intellectual property. And that’s why I’m really excited about our guest today. Sharon Toerek is an intellectual property and marketing law attorney. She has a firm that works with clients all over the country but is based in Cleveland, Ohio. And she devotes her legal practice at Toerek Law to helping creative professionals protect, enforce, and monetize our creative assets. Sharon works a lot with clients in the advertising, marketing, and creative services industries and consults with them on legal issues, all around copyright and content protection licensing of creative content, trademark and brand protection matters. And also just agency service contracts, freelance contracts, social media issues, and a plethora of things that today’s agency runs into.

Speaker 1 (02:26):

She is very involved in our industry. She has been the former president of the Ad Fed in Cleveland. She also serves on the Forays legal consultant panel. Sharon and I have worked together for years. I often am referring her to AMI agencies because not only is she a great attorney, but she talks in normal language, so you can understand what she’s saying and she understands our business and for all of us, I think that’s really vital. So Sharon, welcome to the podcast. I’m excited about our conversation today.

Speaker 3 (02:59):

Thanks, Drew. I’m happy to join you today. I’m looking forward to our conversation too. I appreciate you having me on.

Speaker 1 (03:03):

Me too. So, you know, I suspect that your world is all about horror stories that oftentimes the phone rings when something is on fire. So what are some of the biggest issues that today’s agencies are banging their heads against that trigger a phone call to you?

Speaker 3 (03:20):

Well, you know, it is funny. It’s such a fast-moving industry and honestly, I’m dealing with the legal end of the business is not why most agency owners got into it. So I would say that that probably creates some of the most frequently asked questions and issues that I see but I think I can put them in a few buckets. A lot of clients want to know and understand how they can better protect themselves and the contracting process with clients. And when they’re doing the business development work that they do to get their pipelines full, they want to understand better, especially the ones who are doing spec work, how to protect their ideation, their concepts, any spec they might decide to produce in the pitch process. They want to make sure that they’re well protected so that if they don’t end up getting the business, they still own the rights to the work that they’ve invested in creating.

Speaker 3 (04:16):

So that’s one area, sort of the pre-engagement, protection of the agency. Secondly, is how to best create a contract that will protect them if something goes wrong in the relationship or that very clearly defines the responsibilities of the client and the agency. Next, I would say a lot of agencies, particularly those that do a lot of branding work, want a better understand how to be a resource for their clients on the whole due diligence process relating to clearing those brands so that they make sure they don’t go down a path that’s unavailable to the client, which creates a lot of uncomfortable conversations and expense. And then as you put it out earlier, most agencies now are working with freelancers and independent contractors or in strategic alliance relationships with other firms, and how do you structure those relationships legally so that the rights to the work end up in the correct place and so that everybody understands the rules of the road. Those are three or four of the most frequently encountered issues I think that agency owners see from a legal perspective.

Speaker 1 (05:24):

My perception is that many of us get it wrong in terms of, we think just because we made it, we own it. And so what are some of the big misperceptions around these legal issues that get agencies into hot water?

Speaker 3 (05:40):

Well, I think the problem is and the biggest misperception is that the copyright law in the United States is fundamentally illogical. When you look at it from just a commercial or business perspective, you would presume, I create work for you, the client, you, the client, pay me for the work, you own the work. And everybody’s perfectly fine with that. And that’s not the way the copyright law works, unfortunately. You’ve got to document those transfers to those work rights in writing. And it needs to be in a really well crafted, doesn’t have to be a complicated contract, but there needs to be clear language. And then secondly, most agencies would assume that they engage a freelancer or another strategic partner to help them do client fulfillment, that once they pay that freelancer or that other strategic alliance firm, let’s say, it’s a videographer, or let’s say it’s a mobile app developer, you’d assume that you own that work once you’ve paid for it. And again, It’s not the way the copyright law works.

Speaker 1 (06:46):

so, so hang on a second. So who owns that work at that point?

Speaker 3 (06:49):

So whoever created it, is who owns it. So unless you’ve got something in writing that spells it out, the freelancer still owns their work and that’s even if you’ve paid them for it. So that’s an unpleasant position for the agency to be in and it’s uncomfortable for the client as well. And it’s easy to work around with a few, drafted in advance, templates that you can have available at any time. You know, you’re going to work with a freelancer or an independent contractor or use the same one on multiple projects, having a process in place to have a contract that says we’re going to own the rights to the work that you do takes care of the problem. It’s just a detail that most agency owners move too quickly to address in a timely manner.

Speaker 1 (07:40):

Well, I can’t even imagine how huge a blow-up that could be if you don’t have that button-down. And all of a sudden the freelancer is reselling that work or doing something else with that work.

Speaker 3 (07:53):

Right. And that’s a problem. The other area of concern for a lot of agencies increasingly, particularly because it puts them in a bad spot with their clients sometimes, is a freelancer who will go out there and use the work in their own personal portfolio without permission. And if they own it, they can do that. But perhaps that’s not cool with the client to have their work displayed in this portfolio. And sometimes, the freelancers may not be completely transparent about whether the client is their client or whether it’s the agency’s client. And that upsets a lot of agencies. So again, having a good freelancer agreement spells out this whole issue, not only of owning the copyrights but who’s got the rights for portfolio displays and when does permission need to be acquired. It just makes the process, it puts the agency in a much better position, both with the client and with the freelancer.

Speaker 1 (08:58):

So I’ve had several agency owners talk to me about the fact that they have their undies in a bunch because a freelancer has, I know that’s a legal term that you probably use all the time. So, that a freelancer has, as you said, built a website, has the work they did for their client on their or list their client on their list of clients. So in other words, it doesn’t say Agency ABC is my client, and I did this work on behalf of client ABC, or Agency ABC, but just puts the client and the client work, making it look like they have the client. What I’m hearing you say is if you don’t have that work done in advance, they technically can certainly display the work because they own it. And you could argue perhaps that they are misrepresenting the client relationship, but they certainly can put the work on their own website.

Speaker 3 (09:48):

Right. You’re right. You’re exactly right. That’s perfectly stated. It’s two separate issues. It’s sort of this whole representation to the world about who owns the planet relationship. And sometimes, where you’ve used a freelancer, as an agency, in sort of a ghost capacity, the client doesn’t even know this freelancer, or that the freelancer is the one who contributed to the project and that’s by design. The agency doesn’t want them to know that. So it’s two issues in one. Having a good, well-crafted independent contractor agreement takes care of both of them. But at a minimum, you want to make sure that if you haven’t gotten that agreement done upfront that you’ve got something in writing from the freelancer after the work’s complete that assigns those work rights to you. I have one horror story in particular about having to chase down freelancers well after a project was complete to make sure that assigned rights to work, in this case, work that turned into the actual new brand identity for the end client, because the client was involved in a mergers and acquisition situation, and they needed to button-down all their intellectual property to complete the transaction.

Speaker 3 (11:13):

So those are steps away that sometimes marketers don’t think about in the heat of getting the projects done, but it’s important for all kinds of reasons.

Speaker 1 (11:25):

I know one of the other issues that you bump into a lot with clients is when they engage with a freelance population, the issue of originality of work. Can you talk a little bit about that?

Speaker 3 (11:37):

Well, I have seen a couple of agencies get burned by freelancers who either misappropriated imagery, online, didn’t comply with the terms of stock licensing houses and incorporated imagery into finished products and sort of either inadvertently or intentionally didn’t obtain the proper licenses. So we’ve seen that. We’ve also had a very unique case where a freelancer actually misrepresented just outright plagiarized, brand identity work as his or her own. When in fact, he or she had obtained elements of that brand identity on logo and inspiration websites, and that created a terrible spot for the agency to be in because it had to then do the backchannel work of making sure that it tracked down the original artists, acquired the rights to the art and properly transferred those rights to its client.

Speaker 3 (12:53):

And so you want to make sure that in your freelance relationships, a freelancer is making a written representation of originality and making a written representation that where they’ve incorporated third-party elements, there’s nothing illegal about incorporating third party software code, mobile applications, or photography, for example, to the finished product. You just need to acquire the proper licenses to do that. So you want to make sure that where they’re involved in harnessing all that third party creative or intellectual property, that they’re papering the licenses or ownership rights to use that stuff. And so these are some of the hazards of working with a virtual, freelance workforce. As many conveniences as it enables and as flexible as it allows creative agencies to be, you can staff up and staff down and be somewhat elastic depending upon your client demand, you do need to have these processes in place to make sure that you are in an affirmed legal position. Now, where these folks work for you, when they’re your employees, you don’t have the same issues because you automatically own the rights to the work that they do. But when you’re using freelancers, you’ve got to ask those questions. Where’d you get the stuff? Are you warranting its originality? And say so in writing.

Speaker 1 (14:17):

I have so many more questions that I want to ask you, but before we get into those, let’s take a quick pause and we’ll come right back. If you’ve been enjoying the podcast and you find that you’re nodding your head and taking some notes and maybe even taking some action based on some of the things we talk about, you might be interested in doing a deeper dive. One of the options you have is AMI remote coaching. So that’s a monthly phone call with homework in between. We start off by setting some goals and prioritizing those goals. And we just work together to get through them. It’s a little bit of coaching, it’s a little bit of best practice teaching and sharing, and t’s a little bit of cheerleading. Sometimes, on occasion, you’re going to feel our boot on your rear end, whatever it takes to help you make sure that you hit the goals that you said. If you would like more information about that, check out agency management institute.com backslash coaching. Okay, let’s get back to the show. So, all of that is sort of tied around the freelance issue, but I also think a lot of agency owners leave themselves pretty exposed just in terms of traditional contracts. And even though the agency of record contract is fewer and far between, agencies are still putting together scope of work documents or project documents all the time. Where are we leaving ourselves exposed in that kind of space?

Speaker 3 (15:38):

Well, a couple of areas and I’m pretty agnostic. My personal view is every agency should have a master service agreement available, even if you’re not going to be in an AOR relationship, which is less and less the case, but you need to have that agreement at the ready for a couple of reasons. First of all, to keep things moving quickly. And second of all, to put yourself in a better position to leverage the appropriate deal with your client. Because I can tell you the major areas where the agency’s contract and the client’s contract are going to be different. And those are again, intellectual property ownership. Your client’s contract template is going to say they own the work from the minute it’s created. And you as an agency are going to want to make sure you’re not transferring the rights to that work until you’ve been paid. So that’s one key point to include in every contract you enter into with your client. Or if you choose to just put terms and conditions in your scope of work or your proposal, that’s one you want to make sure is included – transferring the work doesn’t occur until you get paid.

Speaker 1 (16:51):

So hang on a second. What you’re saying is transferring the ownership of the work. So in other words, we design a logo or something for a client. We get it ready to go on letterhead and signage and their website or whatever, but technically they don’t own it until we’ve been paid for it? Is that what you’re saying?

Speaker 3 (17:10):

Exactly. And you want to make sure they understand that that transfer is not occurring until you’ve been paid. And if you default to signing the contract template that the client puts in front of you, it’s going to say, I promise you, that the client owns the work from the time it’s created, which takes away your leverage to use those intellectual property rights in the event here’s a payment problem or some other dispute with the contract. So that’s one key area. The second key area and this is more practical, it’s not at all based in intellectual property, but where I see most agencies miss their service contracts or their terms and conditions is transferring the costs of collection onto the client. If the client is a slow pay or is no pay, if you need to engage in legal process in order to get paid for the work that you’ve done, you want language in your contract that says that those costs are going to be the responsibility of the client.

Speaker 3 (18:13):

And the reason that’s important is that if you need to escalate to a legal process, you’re not going to be able to recover your costs. You’re not going to be able to recover your interest. You’re not going to be able to recover your attorney’s fees. In most jurisdictions, certainly in my home jurisdiction of Ohio, and in just about every other, you will be able to get those costs back. And so your margins shrink dramatically in addition to the fact that you’re acting as a bank for your client. So that’s a simple tweak to make to every agency contract, make sure you’ve included those collection costs and that those are transferred on to the client as in life. Those are just two quick top tips I see that are missing from most contractual relationships that I see. And I know a lot of agencies tell me they don’t like the formality of a master service agreement.

Speaker 3 (19:11):

And I understand that. I think that that’s okay. Actually, I think that you can put together a well-crafted set of legal terms and conditions that can be added on as an exhibit to, or incorporated very easily into your standard work orders, purchase orders, proposals, scope of work documents, whatever the agency likes to use our call them. You just create a legal section to that document. The key is consistency. If you are using multiple people within your team, whether it’s account coordinators, account directors, account executives, if different people are holding responsibilities in this area for getting the documentation done, those documents are gonna look very different and there’s not going to appear to be any consistency in the agency’s process. So have a consistent set. If you can centralize the process within your agency of contracting with clients, maintain those documents in an easy to find place. And this is 101 stuff, but the problem is agencies get so busy with the actual execution of the work or with the actual excitement of business development that these details get missed. And a lot of times they’re not a problem because everything goes swimmingly, but when they are a problem, you’re going to want to know that you’ve got solid documentation on your side.

Speaker 1 (20:48):

I also think it doesn’t happen because agency owners don’t know what to do and are a little afraid to ask and are a little afraid of the $300 an hour, talk to the lawyer thing. So I want to just stop for a second and make sure that the listeners know there are a couple of resources that you’ve put together that help agency owners sort of understand this. And again, one of the things I appreciate about you as an attorney is you don’t talk like one, you talk like we talk. And so we can actually understand what you’re saying without a lot of, theretofores and whereas’, so this’ll be in the show notes as well, listeners, but a couple of resources for you. Go to legalandcreative.com. That’s sort of Sharon’s home site where she has a lot of free content around these issues and kind of some best practices and that sort of thing.

Speaker 1 (21:37):

And if you go to agencylegalprotection.com, again, there are all kinds of free resources that you can download or look at. But Sharon has also built a product to help all of us do all of this better, but at a price point that doesn’t make you cry. So Sharon, can you tell us a little bit about your product? I know that it’s relatively new, but just give us a little idea of what we’ll find at agencylegalprotection.com, and then I want to go back because I have more questions.

Speaker 3 (22:08):

I appreciate that. We finally decided that as a result of the most frequently asked questions that we received from our agency owner clients, there was a common set of issues. And so what we’ve done is create a legal toolkit for marketing agencies. It’s called the Legal and Creative Agency Protection System. And it does just that. It gives you all the tools in one place to help agencies with issues related to their client contracts, related to their freelance contracts and relationships, related to brand protection and trademark issues for branding agencies. There are content marketing and social media legal compliance policies. So what it is, it’s some learning material. And then what most agencies care about is the second part of the product, which is the actual toolkit. There are model contracts in there, model templates for policies, all in one package so that it gives every agency sort of that baseline kit of resources that can be customized, as you might need to do, depending on your own process.

Speaker 3 (23:21):

But we did it because of just the reason you cited. Agency owners are fearful of a la carte legal costs. I was getting a lot of requests about where they could find these templates online and so we decided to create a place where they could do that. It also solves the problem of what to do every time you get a new relationship with a client or a freelancer. Are we reinventing the wheel every single time? Where’s that document that we used last time? Where’s the template? Now they’re all in one place centralized, easy to find, quick to use. It’s for those agencies who want to take a more self-directed approach for whatever reason, because they don’t have the right team in place from a legal perspective yet or because they just prefer to take a more self-directed approach.

Speaker 1 (24:12):

But this is not so self-directed that they’re going to make mistakes. At least this is a legally sanctioned self-direction.

Speaker 3 (24:19):

Yeah. I do have to say, in the interest of the ethical rules that govern us lawyers, look, laws will vary in every state related to contracts. What this is, is a set of vetted materials that we’ve created based on our experience, working in multiple jurisdictions with advertising agencies. You’re not going to find stuff in the toolkit related to employment contracts. For example, you won’t find an employee manual. You won’t find a model office lease. So it’s not a small business or business owner’s toolkit per se. It is really slanted towards the issues that marketing agencies, creative agencies, and design firms encounter on a day to day basis and adapted based upon the practices that I use in my own work with agencies.

Speaker 1 (25:13):

Okay, great. So, listeners, I highly encourage you to go check that out, but let’s get back to our conversation around how agencies are conducting themselves. So yeah, yeah. I get that everybody’s busy and yes, you’re right, the legal stuff is not why anybody got into the business, but what do you think gets in the way of agencies doing this?

Speaker 3 (25:35):

Well, I think those are the big reasons. It’s not sexy, you know. This is the kind of stuff…

Speaker 1 (25:46):

We do like sexy in the agency business.

Speaker 3 (25:48):

Right? It’s an industry based on sizzle and this is not the sizzley part of what you do. And so I think that’s, a big part of it. I also think that most agencies are comprised of folks who wear many hats in their work. Gone are the days for most small to midsize independent agencies where you’ve got a new business person who does only new business and then an account exec who only handles account management. A lot of times these days, team members are wearing multiple hats. And because they’re doing that, no process gets put in place that gets followed consistently from client to client, job to job, relationship to relationship. So I think that’s a big part of the problem, right? It’s very diffused. There are different people running different projects and are engaged in different aspects of the business,

Speaker 3 (26:50):

not necessarily all talking to one another either because there’s not a process for them to do that or because they’re busy trying to make hay for the agency. So I think that’s a big part of it is a lack of consistency due to people wearing multiple hats, coupled with the very fast pace of the particular industry that you’re in. I think part of it is fear too, of having to pick up that phone and start that meter running. You don’t want to pay for legal counsel to sort of learn the particulars of your industry on your dime. Some unusual things about this industry that don’t occur in other service industries. The whole issue of sequential liability, for example. If you run media buys or you want third party purchases run through the agency and charge that up with a slight administrative fee, we’re seeing less and less of that these days, but there are still a lot of agencies out there who are handling those third party buys.

Speaker 3 (27:56):

How do you handle that? What are the liability issues around non-payment for that stuff? They’re fearful of the expense, of getting a legal review conducted or starting from scratch every time with a new legal issue. And then part of it is just, there’s not a lot of time spent around education around the legal issues. So a lot of these issues are a surprise to many people who are in the industry. They don’t spend a lot of time thinking about them, particularly the ones that don’t seem commercially reasonable, like the way the copyright law can work. I get a lot of questions around trademark and branding, and there are misperceptions really around how you adequately clear a potential trademark. What are the things you can start with to do yourself? And then when do you need to escalate to get some legal help to make sure that that brand is going to be secure for the client? So that’s sort of a menagerie based on my experience of the reasons why I think the legal stuff that can be so challenging for agency owners.

Speaker 1 (29:05):

Well, and I think the other one that you were too kind to mention is ignorance. I think a lot of times agency owners don’t know better because you just assume. It’s a mix of ignorance and naivete. I think that A – we go into every client relationship thinking that they’re going to be the best client ever and that it’s going to be great forever. And we don’t anticipate where there’s going to be trouble. And B – I think a lot of times agency owners, most of them grew up in the agency business and they’re really good at the agency side but they probably have never taken a law course, or certainly have not thought about business law as it relates to them. So they just don’t really know how or where to protect themselves to the extent that they need to.

Speaker 3 (29:48):

Right. And I think the industry has changed so rapidly even in the last five years. I’ve been working with clients in this industry for close to 15, but I’ve seen so much dramatic change in the last five years. Part of it is our industry is now hugely populated with millennials and they are digital natives. So a lot of this stuff is just completely foreign to them that the idea that they might have to ask somebody for permission to use something they found on the internet is just crazy to them because that’s just not how they were raised. And then second, the industry is just faster-paced than it used to be. The hardest cases for me sometimes are the agency owners who have been in the business for 20 years. I have a case right now, it’s an agency that’s been around for a really long time, a great small agency.

Speaker 3 (30:48):

They have never had a payment issue with a client. They have been completely blessed. I can say that about almost none of my clients, so they really never used formal contracts and it’s never been a problem until it was a problem. And now, unfortunately, they’re in litigation with one of their clients over payment for services. It has been a huge smack in the face for this small agency because it’s just something that never occurred to them they’d ever have to deal with. And I know there are other stories out there like that of agencies that are longstanding and have liked the handshake style of doing business. And unfortunately, our businesses work at faster paces these days. And those sort of informalities that were okay before, aren’t now. And so, that’s a hard conversation sometimes to have with an agency owner for me as a legal advisor.

Speaker 1 (31:45):

Yeah. You mentioned something that I want to dig