By Entrepreneur & Innovation Clinic Student
Branding is an important part of building your business. It is a way for customers to quickly recognize your product. As such, a logo is an extremely valuable asset to your company.
Entrepreneurs do not always pay close attention, nor are they fully aware of the legal aspects of creating a brand. This could prove costly as you run the risk of not only lawsuits, but the forced abandonment of any logos or packaging and any associated goodwill. Below outlines some of the most common legal mistakes entrepreneurs make when building their brand.
1. Hiring a friend or close associate to develop a logo without a written contract.
Lots of new business owners rely on favors. I know many business owners who call on friends to create logos. Such informal favors are lifesavers for a new business that has little to no excess funds. Without a formal contract, however, you are limiting your intellectual property rights to an implied license to use the logo for the limited purposes you originally imagined. For example, Suzie is starting an independent consulting firm, she asks her friend, Lizzie to create a logo for the website. As a result, Suzie will only own an implied license to use the logo on her website.
An implied license is also not exclusive. Exclusivity of rights can only be transferred through a written document. Suzie should have created a written agreement with Lizzie assigning any and all rights to the business.
Under the work-made-for-hire doctrine, a business will own any copyrighted works created by an independent contractor if they agree to such terms in writing. Such contracts are easily obtainable online. It should be noted that this only applies to collective works (The Copyright Act contains a list of works that are covered under work-made-for-hire contracts). Therefore, it is important that any written work-made-for-hire contract includes a clause assigning any and all rights to the employer in the case that the relationship is deemed not to be a work-made-for-hire.
2. Assumed the company owns an employee created logo.
Under the “work-made-for-hire” doctrine, an employer owns any copyrightable work done by an employee within the scope of their employment. Many business owners assume that because an employee created the logo, it belongs to them. This is not always the case.
First, the employee must be an actual employee, not an independent contractor. A court turns to agency law and looks at the totality of circumstances to determine whether or not an individual is an employee. These factors include: who controls the manner and means of creating the work; is there a skill required; how provided the tools to create the work; where was the work done; is the relationship long-term or temporary; does the hiring party have the right to assign additional projects to the individual; who controls the working hours; is the hiring party involved in the hiring of third party assistants; is the work a part of the hiring parties regular business or are they in the business of creating logos; are there employee benefits; does the hiring party pay employment taxes.
Second, the work must be done within the scope of their employment, i.e. in line with the type of work the employee is employed to do. You must ask yourself whether it is likely that a person with a similar job title would take on such tasks. It must also be done within authorized time and space constraints. It is unclear whether this means during office hours or merely during the employee’s time as an employee. Additionally, it must be motivated at least in part by a desire to serve the employer.
Since it is not always clear who qualifies as an employee, it is in the employer’s best interest to enter into a contract with the employee. Such a contract would state that the individual is considered an employee and that any works created are deemed created under a work-made-for-hire arrangement. Furthermore, the contract should provide a clause assigning any intellectual property rights to the employer should the individual be found not to be an employee. Additionally, it may be prudent to include in your company’s employment contract a clause stating that the employee agrees that the company owns any copyrighted materials created during the DURATION of their employment.
3. Using Stock Images to Build Your Logo.
There are many websites that offer stock images to graphic designers. If you should use these images, be sure you clearly understand the terms and conditions for the site and the ramifications of using such images. For example, one site only grants a license for non-commercial use. Another limits the commercial uses that are licensed or the duration of use. Additionally, the original artist retains ownership of the copyright. It is in your business’s best interest to create NEW art instead of using images with limited licenses. Your trademark logo is valuable, but it is not valuable if you have limited rights. You do not want to find yourself having to abandon a logo, which has become associated with all the goodwill you created.
4. Only Changing One or Two Elements of A Stock Image or Found Image in An Attempt to Create a “New” Image.
If you or your designer is inspired by one of these images and use it as a basis for your own image, you should make sure that the images are different enough that you will not be seen as infringing that person’s copyright. Under The Copyright Act, infringement occurs in two situations: 1) when defendant had access to the original work and the copied work is substantially similar to the copy; or 2) the original and copy are strikingly similar and some access to the original image is reasonably imaginable. It does not matter whether you intended to copy a work or not. There is no set formula for determining whether the two works are sufficiently similar. Courts use different standards; such as the overall impression of the works and whether an ordinary observer would find the work misappropriated. A new business should avoid placing themselves in a situation where the originality of their logo is questioned. Any questionable works could lead to costly litigation and the possible abandonment of your logo.
 See Agency Law Restatement §220(2).
 This is the agency test used in Miller v. CP Chemicals.