The American Association of Advertising Agencies (“4A’s”) recently published a position paper regarding advertising agency ownership of the software and software tools agencies use and develop on behalf of its clients. In short, the 4A’s recommends that agencies include provisions in their agency-client agreements that preserve agency ownership and agency right to use all agency developed software and tools.

The 4A’s is troubled by the fact that many agency-client agreements continue to grant the client ownership of all agency-created material. These broad grants may unwittingly transfer ownership of software and software tools that the agency never planned to relinquish. The 4A’s argues that advancements in technology have rendered such broad license grants overbroad because granting clients rights in the ownership of the technology underlying the developed creative materials such as software and software tools could inhibit an agency from using those tools for its other clients. The 4A’s believes that unlike “a commercial or other advertisement that likely has not applicability beyond the value to the specific client, software will likely have applicability beyond the project for which it was originally produced.”

Analogizing software tools to the camera or editing equipment used to create a film, the 4A’s argues that agencies’ clients should not expect to own the tools that are used to create the ultimate digital end product. Generally speaking, the client is not interested in inhibiting their agency’s ability to work for other clients, and as long as the client retains the right to use the software tools necessary to exploit the creative, the 4A’s believes that the client is arguably not harmed by allowing the agency to retain ownership of the software tools. The 4A’s recommends that agencies should consider investing in agency-owned software and technologies separate from any software created during the scope of services for a specific client.

The 4A’s also believes that the advent of these new technologies has increased the risks that advertising agencies face for potential patent infringement claims. The 4A’s cites the rise of so-called patent trolls and believes that agency-client agreements that place the entire burden on the agency to indemnify the client for intellectual property claims may no longer be appropriate allocations of risk. At a minimum, the 4A’s believes that agencies should include a limitation on their liability in agency-client agreements particularly in light of the often exorbitant costs of patent infringement litigation.

–Rob Newman, Esq.

These materials have been prepared by Winston & Strawn for informational purposes only. These materials do not constitute legal advice and cannot be relied upon by any taxpayer for the purpose of avoiding penalties imposed under the Internal Revenue Code.