Close-Up: Should agencies hand over their IP?

The Budweiser pitch process demands agencies sign away IP rights. Is that fair, Kunal Dutta asks.

For agencies battling in tough trading conditions and new-business directors bereft of juicy leads, news that Anheuser-Busch was putting its £5.5 million UK Budweiser account up for pitch seemed too good to be true.

Now many wonder whether it was. Last week, the pitch process came under scrutiny after agencies were asked to sign a non-disclosure agreement that effectively assigned the intellectual property rights of the work to the client.

Each was asked to present three approaches, effectively equipping the client with a "pick-and-mix" selection of campaigns. Add that to news that the brand recently terminated its 14-year relationship in the US in favour of a strategy of hiring agencies on a project basis, and it's no surprise that two shops - the incumbent, Fallon, and TBWA\London - have since pulled out.

If anything, it is more confirmation that the recession has transformed creative services into a buyer's market. But for an industry already having to squeeze margins, is signing away rights - as early as the pitch stage - on the very commodity they sell a request too far?

Marina Palomba, the legal director at the IPA, believes so. "This is tantamount to bullying and theft," she says. "Clients only do it because they know it's a prestigious account that agencies are desperate to work on. No other industry would surrender IP rights for nothing."

Stuart Pocock, a managing partner of The Observatory, says educating businesses on this issue is key. "Clients often ask 'what if the agency we don't like, comes up with an idea we do?' Our explanation of IP has to be tough from the outset."

Unlike other creative industries, which license aggressively, adland has traditionally struggled to protect its work after it leaves the agency. Much of this is down to the old model, where agencies signed away IP rights in return for fees and billed time on creative work. Today, most contracts license the use of IP, and assign it to the client at the end of the relationship on condition that the client has fulfilled its obligations.

But it's hardly surprising that classic ad icons, such as the Sugar Puffs Honey Monster, have since been used by clients "free of charge" - long after leaving the agency that first created them.

Meanwhile, as broadcast media fragments and agencies make further inroads into content creation with its prospects of brand spin-offs, merchandise and ideas re-emerging in new environments, IP is a commodity that stands to bring more revenue into an agency than traditional advertising.

"IP is what we sell and we have to be careful what we do with it and how it's negotiated," Neil Christie, the managing director of Wieden & Kennedy, says. "We try to limit the geographical scope of the IP so that if it appears in new markets, the agency stands to earn fees from that IP."

Of course, none of this can occur if the rights have been surrendered at pitch stage. "When an agency is appointed there has to be absolute contractual clarity regarding who owns the idea or how it's going to be reimbursed. To be asked to waive all IP rights up-front regardless of the pitch outcome sets a dangerous precedent," Matt Shepherd-Smith, the managing director of TBWA\London, says.

Even with the best protection clauses in place, there is no guarantee of safety. "If you pitch an idea that then appears in a prospect's ads four months later, there's bugger all that you can do about it," Christie says. "But it's still the principle that is worth fighting for."

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INTERMEDIARY - STUART POCOCK, managing partner, The Observatory

"There are enough hoops for agencies to jump through in order to make a shortlist. But to give away ideas knowing that it could be another agency which ends up developing them is a bridge too far.

"We certainly wouldn't handle a piece of business under these conditions, unless the client was prepared to pay the agencies a shedload of money to pitch for it.

"Although a decent pitch fee might make it tenable, there are still concerns about this premise. It fosters an obstructive distrust that will only make agencies tentative about presenting their best ideas.

"Of course, the irony is that even the agency which ends up doing the work is unlikely to be thrilled by the prospect of being briefed on a pre-existent idea, which is likely to lead to work which says 'not invented here'."

LAWYER - MARINA PALOMBA, legal director, IPA

"If we had decent pitch fees, it may be within the rights of clients to talk about IP rights. But a one-way non-disclosure agreement with a hidden clause assigning intellectual property to the client is appalling. Agencies may decide that it is worth the risk, but that sets an unfortunate precedent.

"Creativity and innovative ideas are the tangible properties of ad agencies. By signing such an NDA, clients are effectively transferring rights of ownership and they can then sell them on, license them on their own terms or even bin them out of existence altogether.

"The ad industry has historically been too lenient on this issue. Other creative suppliers such as musicians, photographers or animation agencies would never assign the rights but have them heavily licensed."

AGENCY MD - NEIL CHRISTIE, managing director, Wieden & Kennedy

"A non-disclosure agreement should be a mutual arrangement in which both parties are clear on the terms of conception, strategy and ownership. Sometimes you might have a client that agrees to pay a pitch fee in return for IP rights but more often than not the amount offered doesn't make it worth it.

"Why would any agency want to work to this arrangement? Clients should be aware that it can cost agencies as much as £25,000 to lose a pitch. To then walk away having surrendered your creative work on top of that is pretty unforgivable.

"Common agency contracts should have provisions that insist IP on a property passes to a client once they have paid in full for that job. If the arrangement is terminated ahead of these conditions, the IP should remain with the agency."

CLIENT - JON RUDOE, head of retail and marketing, Ocado

"Strong leadership and effective negotiation are skills at the heart of account handling and new-business. No-one is ever forced to pitch to a set of rules that they are not comfortable with. But arguments over IP rights have to be resolved at the outset of a pitch process - not debated afterwards.

"The theory of a client taking an agency's idea and commissioning it elsewhere raises questions. If an idea was so brilliant, why would a client not want anyone but its actual originators to see it through? There is also a reputation issue for large brands. In a digital age, companies are held to account for their actions. Many marketers would be wary about taking someone's idea and using it elsewhere without obvious royalties or IP clauses in place for the backlash that could follow."