The Community Speaks Out About Patents

Members of the marketing community have been speaking out about patents at 4A’s events.

• A panel of agency legal experts highlighted “Best Practices  for Evolving Patent Indemnity Provisions in Agency-Client Contracts” at a recent 4A Advertising Legal Affairs Committee meeting     
• Drew Curtis, Founder and CEO of Fark.com, discussed his company’s successful patent battle at the 4A’s Transformation Conference in Los Angeles                                                         

A summary of the legal experts’ discussion and a video clip of Drew Curtis’ Transformation presentation are provided below.

I--Best Practices for Evolving Patent Provisions in Agency-Client Contracts

Panel Moderator, Eric Prager- K&L Gates

Panelists:
Heidi Young, re:Sources Publicis USA and 4A’s Committee Chair
Nancy Wynne, Havas-EuroRSCG;
Candice Kersh, Frankfurt Kurnit Klein + Selz.                       

Session Overview

The genesis of the panel discussion was to address the topic of patent indemnity provisions in agency-client contracts both from the standpoint of the internal dynamics of agency business and the external dynamics of dealing with clients.

4A’s Tom Finneran, provided an overview of the 4A’s patent initiatives over the last 18 months re the issues of patent liability and patent infringement lawsuits. This includes issuance of two best practice/guidance documents:

Web Functionality Software and Tools: Patent Infringement Risk Management
and
Patent Risk Guidance--Indemnification and Limitations on Liability.

Mr. Finneran commented on the 4A’s Patent Web site launch, and urged the community to post informative patent related material and comment on articles/trends.

The Panel Discussion

Introduction

Eric Prager: It is virtually impossible to avoid patent issues. There is an increased focus on patent issues as agencies continue to produce more and more digital work with embedded functions, i.e. software. The purpose of the panel is to share experiences in negotiating patent indemnity provisions in agency-client agreements and to discuss strategies for pushing back against client indemnity demands.

Panel Q+A:

#1) Patent Risk Awareness

Eric Prager to Heidi Young: How aware is your agency’s senior management and operations staff about the risks and exposures involved in giving patent indemnity to a client? Are they familiar with the workings of the patent enforcement business, i.e, companies described as Non-Practicing Entities (NPE)(a patent owner who does not manufacture or use the patented invention, but seeks to enforce its right through the negotiation of licenses and litigation) also known as “patent trolls”?  Is it your sense that management is willing to draw a line in the sand on not providing patent indemnification to clients?

Heidi Young: speaking for our own shops, senior management generally becomes aware of the patent troll issue when legal counsel takes issue over an indemnity provision in a MSA negotiation or when an actual claim by a patent troll is made. Heads of production, particularly in the digital shops,  are very aware of the issue. The subject has become part of advertising training within our shops.

Discussion from the committee meeting audience:

Ron Urbach (Davis & Gilbert): Who are the gatekeepers?

Heidi Young: the CFO’s/Financial Management

Tom Finneran:  it is only very recently that CFO’s have become aware and engaged in this discussion If the starting point of the MSA doesn’t have a digital component but a year later the agency is producing digital work with software components then the agency will be forced to re-open the MSA negotiation.

Ron Urbach:  Clients are very well informed about the issue.
 
Tom Finneran: the 4A’s fielded a survey among 4A’s members re patent infringement and patent indemnity issues and the predominance of claims are sent to the client not the agency.

#2) Attorney Engagement

Eric Prager to Nancy Wynne: When do you typically get involved in discussions with clients on patent matters?

Nancy Wynne: At the very beginning starting with the negotiations with the client in addressing the intellectual property indemnification.

Eric Prager: What has been your success rate in resisting clients push to make the agency assume the patent liability?

Nancy Wynne:  very good success rate with existing clients …have not had one existing client force us to assume the liability. We will go more than a year without a contract before giving up anything on this point. The hardest is new business when the clients have more clout.

#3) Negotiation Strategies

Eric Prager to Candice Kersh: When entering into discussions with clients’ attorneys, what negotiating strategies have you found to be most effective when discussing patent indemnification responsibilities on behalf of agencies?

Candice Kersh: The issue is a question of business. If you decide to be in the mobile space it is inevitable that you will get hit with a patent troll/patent infringement lawsuit. Agencies must have resolve and be willing to push back against the client in this discussion.

Nancy Wynne: agencies can operate on a SOW if need be in lieu of a full MSA
  
Tom Finneran: smaller agencies do need to protect themselves on this issue or it could drive them out of business.

Discussion from the committee meeting audience:
 
Ron Urbach: a possible alternative is to create an insurance protection provision and pull the issue out of the indemnification provision(s)— consider shared deductibles, a cap, etc.

Candice Kersh:  Although it is my strong view that an agency should not be responsible for patent infringement claims for all of the reasons previously articulated, I understand that agencies, in particular, very limited situations, may decide as a business matter that the agency is being paid a premium that would justify a contribution for patent infringement claims. However, even in those cases, the agency should not have unlimited liability.  The agency and client should agree to a cap on the agency’s liability based on the business deal and the compensation or premium being paid to the agency. Then, rather than “indemnifying” up to that cap, a contribution to the client’s defense of the claim up to the agreed upon amount makes the most sense. Because the client owns the property that is the subject of the claim and controls the ultimate use of the property and perhaps other similar materials, the advertiser is the proper party to determine how to handle the claim (whether by license, settlement or litigation). Since the advertiser controls whether and for how long to keep any allegedly infringing material available, the advertiser should control the defense and settlement of the claim, including the scope and terms of any ultimate license.  (In fact, if, in settlement of a claim, the agency were to enter into a license with the claimant, either on its own behalf or on behalf of the client, it could affect other of the agency’s clients who may wish to handle a similar situation differently.)   Indeed, if the advertiser is not at least in part responsible for the costs of defending or settling a claim, it may have no reason to consider pulling down or modifying the material. Therefore, if the agency agrees to contribute to a patent infringement claim, it should be a matching contribution up to the agreed upon cap so that the advertiser also has an interest in keeping costs to a minimum and evaluating its ongoing needs in light of the corresponding costs.   Finally, there should be some cut off after which the agency is no longer required to make a contribution.  If the advertiser has had the benefit of the use of material for some period of time, at some point, the advertiser has received full value for its payment, and, as is the case with any warranty, after that time period has expired, any new claims should not be funded by the agency. 
 
Nancy Wynne: this should be the exception not the rule.  Agencies should not be giving in on this at all –agencies are not insurance companies and agencies should not be liable. The more each of us independently say “no”, the less leverage the clients have.

Barbara Dent (Leo Burnett): sharing the 4A’s position papers on Patent Indemnification with new clients has been very helpful and effective in presenting the agency position

Jim Pharo: any discussion re coordination with the ANA in issuing a joint position statement--in the long term it is not in the advertisers’ best interest to commoditize the business of agencies.

Tom Finneran:  this “commoditization” issue is simply a negotiation tactic on the part of the advertiser.

Ricki Schweitzer: success comes by getting to the right person at the advertiser –which is management not procurement

Ron Urbach: the majority of patent suits result in negotiated settlements and obtaining a license

Nancy Wynne: no question that you would settle --litigation is too expensive

#4) Insurance

Eric Prager to Heidi Young:  Does your agency have any insurance that is directed at protecting against patent infringement claims?

Heidi Young: we have not found a policy that makes sense due to cost/search requirements/exclusions.
It’s difficult to get insurance by and large and very hard to get claim information. There are some companies that offer insurance on a project-by-project basis—for example:

• SAMIAN Underwriting Agency (http://www.samian-underwriting.com/)
• IPISC (Intellectual Property Insurance Services Corp) (http://www.patentinsurance.com/)

The outside production company vendor may indemnify the agency and the client as long as there is a line item for insurance…the insurance is obtained by the production company.

5) Indemnity Challenges

Eric Prager to Nancy Wynne: In negotiating client demands for patent indemnity, what client negotiating tactics do you find most difficult to deal with?  What have been your best tools for addressing these client negotiating tactics?

Nancy Wynne: the hardest is in new business pitches.  Advertisers say don’t come to the pitch without agreeing to give us patent indemnification. If, for example, it’s only a $200,000 piece of business it may not be worth it to the agency. Requiring a patent indemnity from the agency may force the agency to develop less creative work. Certain worked may be farmed out to third parties on the premise that the agency acts as agent with third party vendors and hence the vendor not the agency is liable to the advertiser client.

Agencies are in the business of creation—not legal and not insurance.  Patent lawyers will tell you that there is no way to completely protect yourself.

Candice Kersh: deal with the advertiser’s marketing group ---the issue is if you want to be in this space, patent infringement suits and patent infringement liability are a cost of doing business for the advertiser.

Panel Summary Advice

At the conclusion of the panel discussion, Tom Finneran asked each of the panel membersto sum up what they considered to be the single most important suggestion/piece of advice they would give?

Candice Kersh:  Be firm

Eric Prager: use the 4A’s materials discussed at the beginning of the panel to support the explanation to clients as to why they, and not the agency, should be assuming the patent infringement liability.

Heidi Young: educate your agency financial and business management executives on the issue and the importance/impact it could have on the agency’s financial well-being.

Nancy Wynne: only the agency CEO should have the authority to approve caps or the granting of any indemnification to a client or potential client.

II—Drew Curtis, CEO and Founder; Fark.com Inc.

Entrepreneur Drew Curtis of Fark.com discussed his handling of a recent claim that Fark.com received from a patent troll. Fark.com pushed back and refused to make payment to the alleged patent holder. To view Mr. Curtis presentation click o the link below:

[Transformation LA 2012] Patent Trolling

A Few Final Words on Patents

Agencies are confronted with patent infringement issues to a greater degree than at any time in their history; however, the risks presented by those issues can be reduced through appropriate contractual relationships with clients. Your agency should review with its counsel the extent of exposure presented by engagements where the agency develops web and/or mobile functionality for a client’s marketing programs, as these could, directly or indirectly, expose the agency to patent risk.