Andrew Eisenberg is a partner and intellectual property attorney at the Austin office of Lee & Hayes, PLLC. I have enjoyed getting to know Andrew and learning about his company as we both mentor small business owners. Andrew’s legal knowledge is very impressive and his experience is broad. He holds three patents himself and has also worked at a startup. I’m proud to list him as one of my Trusted Suppliers.
Saving money on cheap logo designs can create major headaches (and expenses) down the road for boot strapping or uninformed companies. Check out this post from Andrew’s blog for a cautionary tale about the risks of cutting corners on one of the most valuable long-term assets a company may have. This post appeared first at http://andreweisenberg.legal/trademarks-all-about-your-graphic-designer/.
I hope you enjoy Andrew’s post as much as I do.
Trademarks: All About your Graphic Designer
I see it all too often: companies in the early stages of developing a brand identity willingly walk into future trademark and re-branding issues. Typically, a start-up will be operating in ‘boot strap mode’ in order to conserve funds; in trying to save a few hundred dollars, they turn to an internet stock photo company or low cost graphic design site rather than employing the services of a quality graphic designer.
While this will save money and therefore seems like a great idea at the time, it often results in brand issues down the track. The result? The company needs to re-brand just when it’s starting to make profits!
Internet based graphic design companies
Internet based logo design companies are everywhere – and their services are cheap. I am seeing an increasing number of start-ups utilizing these companies in order to acquire a graphic that can be then trademarked as a logo.
These internet based design companies work by matching overseas designers with companies in the US; the few US dollars these designers make for a job go a lot further in their home country and allow them to earn a decent living. These websites use terms and conditions that effectively transfer ownership from the designer to the startup – and these terms are based on US law.
While I think the acquisition of low-cost graphics is a good idea in most situations, I believe complications can arise when the start-up is planning to build a brand – which is an expensive and often difficult task – using these low-cost graphics.
So where does the issue arise? In many cases, the laws of the country in which the graphic designer lives often differ from US laws. In some cases when I’ve taken a closer look at the transfer of copyright ownership rights in the website’s terms and conditions, I’ve noticed that they were insufficient to enact a transfer in the designer’s home country.
In order to explain the issue with cut-price logos, I will use my friend Marshall as an example.
Marshall founded a company – and I took personal ownership interest in it. Being a start-up, Marshall was doing everything he could to save a couple of dollars, and when it came to branding he chose to acquire a logo through one of these design websites. The site he chose allowed designers from around the globe to submit graphics based on his brief; he saved about $400 by going down this path.
Once graphics were submitted, Marshall chose the best design and the designer was paid for their work. The logo looked great and everyone was happy – so Marshall went ahead and trademarked the graphic as the company logo. He then proceeded to build a brand around it.
A few months down the track (in hindsight, we were lucky it wasn’t a year or more later) Marshall received a letter from the graphic designer who created his logo. The letter contained a copyright license: Marshall could use the graphic in exchange for a $25 fee every time it was used. Being the trademark of the company, the logo was in heavy use.
Understandably, Marshall thought this was outrageous; he had paid for the logo and was provided with a copyright transfer from the website as part of the agreement. So what happened? Well, the copyright release in the website terms and conditions failed to meet the language of the designer’s country of citizenship/residency. Therefore, not all the rights were transferred. The designer was clearly aware of this situation and had decided to take advantage of it by sending out the copyright license.
Of course, if the logo only needed to be used once or twice, Marshall would have paid the money – $25 isn’t going to break the bank. However, the logo was inextricably linked with the company’s brand; Marshall needed to be able to use it on a constant basis and paying to do so would have put the company out of business. With no other viable option, Marshall was forced to re-brand. He lost more than the small fee he paid for the graphic initially – he lost money spent on advertising under the logo, trademarking the logo and also all the brand image and awareness he had been busy building over the preceding months.
Yes, Marshall’s situation is rare – but that doesn’t mean it doesn’t happen. Most of the time there is no issue when buying graphics via online design sites, but the cost of having to potentially re-brand down the track – especially if it happens at the wrong time – has the potential to kill a company. It’s not worth the risk.
What about using stock photos as a logo, brand identifier or trademark?
When low on cash, a popular choice for start-ups is to use a stock image from a stock photo site as a trademark or brand identifier. While it’s easy on the bank balance, there are a number of legal issues related to using a stock image as a trademark.
1. Many stock photo companies have terms and conditions that prevent you using images as trademarks or brand identifiers.
Ultimately, this means if you decide to use one of their stock images as a trademark, you will breach the contract with the company you purchased the image from. In this scenario, it’s possible the stock photo company could have claims to damages against you.
Why do stock photo companies have these terms and conditions? Simply put, they want to be able to sell as many copies of an image as possible. If you are able to trademark an image, they other customers who buy the image from the stock photo company can’t actually use it – thus, it would be bad for business in the eyes of the stock photo company!
Their terms and conditions preventing you trademarking an image is their way of protecting their business.
2. Even if you are granted a trademark, it’s possible the rights might be limited or the trademark might eventually be rendered invalid due to others using the mark.
If others start using the same image to promote a product that competes with your product – which is likely as they may have purchased the same image from the same stock photo company – then your competitor may have rights to continue using the trademark, even though you own in. In some cases, they may even be able to cancel your trademark.
Mary is the founder and owner of a company that currently has multiple million-dollar product lines.
During the course of building her many product lines, she used stock images on the labels. As her company grew and became more successful, she began to have issues with other companies using the same labels on sites such as Amazon. These products were knock-offs; another business was trying to pass their products off as Mary’s.
Unfortunately, when Mary looked into trademarks and legal protections against these knock-off products, it turned out she was actually the one in the wrong. When she purchased the stock images she had actually agreed not to use them as trademarks or register them with the United States Patent and Trademark Office. Ultimately, there was little Mary could do about the knock-off products.
This left Mary with two options: rebrand or put up with the sales lost through knock-offs. While neither were good options, Mary decided that the best option long-term was to rebrand – she did so with a designer who could create custom work she was able to trademark.
What about utilizing stock photos as a basis for a logo, brand identifier, or trademark?
When companies end up in the same position as Mary – that is, with the option to either rebrand or deal with a ‘trademark’ that can be copied – I find that many decide to try and create a ‘unique’ brand identifier that is based on the old stock image. The idea is the company will end up with a ‘new’ trademark that still looks like the old one in the eyes of customers – thus avoiding confusion.
While this is good in theory, in reality it’s called derivative work and the contract signed with the stock photo company most likely prevents purchasers from creating such work. This means that the company is left with all the same issues as using the actual stock image.
The best way to overcome this is to hire a designer and then describe to them what you want – rather than show them the actual stock image – and then ask them to create something similar.
It’s always tempting to save money and use a stock image – especially when your start-up is in its early stages and money is tight. Go ahead and use a stock image on your website or advertising, however if you wish to use a stock image as part of your trademark or brand identity it’s best to reconsider. Not only do you risk other companies creating knock-offs, you may actually breach the contract you signed with the stock image company – and end up owing them money in damages!
To contact Andrew to discuss this article or for a consultation, go here.