Design Law 2013

Design Law
March 2013

The Designers Institute – Design Law © March 2013

Goals

1) Understanding key design laws; and

2) Introduce the 2012 Designers Institute contract
set

Designers Institute – Design Law © March 2013

Key design laws


Case studies
The informal – and seemingly innocuous -
brief

“I created a one-off design for an old
acquaintance…now he wants to mass-
produce the design, without paying me
royalties.”
“But I put my copyright notice on the bottom
of the design…” ©


Case studies
The free pitch

“My client asked me for some initial concept
designs, before deciding whether to formally
engage me as designer. The client decided to
use someone else, but is using my concepts
without paying anything.
When I asked for payment, the (ex) client has
now claimed that it owns copyright in the concept
drawings.”


Case studies
The Disputed Terms of Trade

“I produced some designs for a client, who is
now claiming that the designs are flawed and
demanding that I pay for damages including lost
profits and project delays, even though these
damages are excluded in my terms of trade.
“My terms of trade are on the back of my invoice,
which the client has already received and paid.”


Key Design Laws

Selected Topics:
1. Intellectual Property
2. Liability for Design Works
3. Licensed Building Practitioner Regime
4. Contract Formation


1. Intellectual Property
• Intellectual Property = “creations of the mind:
inventions, literary and artistic works, and
symbols, names, images, and designs used in
commerce" (WIPO)
• Types of IP:
– Patents
– Trade Marks
– Registered Designs
– Copyright


Patents
• Patents Act 1953
• Protects an “invention”
– Includes a new product, process, article or
machine
• Must be some degree of inventive ingenuity
• Registration – allows monopoly protection


Patent Examples


Trade Marks
• Trade Marks Act 2002
• Trade Mark:
– Anything distinctive which is capable of being
represented graphically
– Must be applied to goods or used in provision
of services
• Can trade mark designs (where appropriate)


Trade Mark Examples


Registered Designs
• Although probably already covered by copyright,
new or original designs can be registered under
the Designs Act 1953
• Designs must be:
– Novel; and
– Purely aesthetic (no mechanical
characteristics)


Copyright
• Copyright Act 1994
• What is copyright?
Copyright gives AUTHORS of certain
ORIGINAL WORKS the right to stop others
profiting from his or her labour in producing that
original work by COPYING it for their own
commercial advantage
• Copyright = The right to copy


Copyright: How does it arise?
Copyright subsists where:
1. The work is of a type protected; and
2. The work is original; and
3. The author is a NZ citizen or was living in
NZ when the work was made.

Registration is not required
©


Copyright: What is protected?
Works protected by copyright include:
– Literary works
– Artistic works (including drawings)
• Irrespective of artistic quality
– Dramatic works
– Musical works
– Sound recordings
– Films
– TV and Sound Broadcasts
– Computer generated works
– Multimedia works and databases


Copyright: Ownership

The author of a work is automatically the owner
of copyright in that work, subject to two
exceptions:
1. Employment rule
2. Commissioning rule


Commissioning Rule
• s21(3) Copyright Act 1994 provides that a party
who commissions certain types of works and
agrees to pay for the works, owns the copyright
in them.
• Timing is important
• Can also capture initial ‘free’ concept drawings, if
there is an implied understanding that future work
will follow if designs satisfactory to client: Oraka
Technologies Ltd v Geostel Vision Ltd (CA, 2010)


Case Study -Oraka Technologies
Customer had been developing an asparagus grading
machine and had arranged for an engineering firm to:
1) Produce drawings of the prototype that the customer
had already made; and
2) Manufacture certain components of the machine.
Firm completed the drawings for free, claiming that it
offered a “free design service” to customers in order to
secure later manufacturing work. Firm was then paid
$26,000 for actual production and manufacture of the
machine components.


The customer claimed that it had commissioned the
works, there was an implied agreement to pay for
them, and the designs were made pursuant to that
commission. The customer claimed that it therefore
owned the copyright, by virtue of the commissioning
rule.
The engineering firm denied there had been a
commissioning as defined in the Copyright Act 1994,
because the design was provided for free, and that it
therefore remained the owner of the designs.

Court Decision:
• “Free design” supplied on the mutual expectation of
subsequent paid manufacturing work was sufficient to
create an intend-to-pay commissioning.
• Design and manufacture were all part of the same
transaction, the design work had therefore been
commissioned.
• Copyright in the works was owned by the customer
(Oraka), not the industrial designer.
Lesson: Clearly agree on copyright ownership in advance

Industrially-Applied Designs

Treatment of Industrial Designs under the
Copyright Act
Where an artistic work has been industrially
applied (i.e. when more than 50 copies of 3-
dimensional reproductions are made for sale or
hire) copyright protection will expire:
• Works of artistic craftsmanship, 25yrs after
made
• For other artistic work, 16yrs from date made


Digital Rights Management

• Copyright (New Technologies) Amendment Act
2008
• DRM: Use of technological systems to protect
creators’ rights in digital media
– Technological protection measures
– Electronic rights management information


2. Liability for design works

Designers are exposed to a variety of trading risks,
often involving:
• Disputes over performance by designer (including
quality of design works); or
• Disputes over work/products from third party
suppliers.


Managing trading risks
Most trading risks can be managed by
combination of:
1. Quality control procedures;
2. Appropriate insurance cover; and
3. Effective use of appropriate contract terms.
There is no principle of law which precludes
reliance on a contractual limitation clause which
applies to works that were negligently executed:
CIV 2010-404-584


3. Licensed Building
Practitioner Regime

• The LBP Regime established licensing
requirements for design works falling within any of
the prescribed Design Areas of Practice (1 – 3);
• “Building Work” under the Building Act 2004
includes design services where the services are
of a type declared to be “restricted building work”
• The introduction of residential “Restricted Building
Work” occurred on 1 March 2012.


LBP Regime (cont…)

• The Building Act 2004 creates various criminal
offences for failing to hold necessary certifications
(fines up to $20,000) e.g. s 314 Building Act 2004
• Related offences include providing false or
misleading information (s 369, $5,000 fine)
• The Act also imposes specific implied terms into
contracts for Building Works involving
household/residential units “despite any provision
to the contrary in any agreement or contract.”


LBP – implied contract terms
Implied Terms under s 397: The building works
must be carried out in a proper and competent
manner, and with reasonable care and skill
(Several other implied terms apply also)
s397(f): if contract states the particular purpose
for the building work, or the result that the owner
wishes to achieve, then building work must -
• (i) be reasonably fit for that purpose; or
• (ii) be of such a nature and quality that they might
reasonably be expected to achieve that result.


4. Contract Formation
It is essential to ensure that the designer’s contract
is adopted in a binding and enforceable manner:

• Adoption by signature is usually conclusive.
• Adoption by notice: Also effective, but essential
to obtain/retain proof of notice & acceptance.
• Particularly onerous clauses may require
‘flagging’ – depends on the circumstances.
• Timing is critical – terms must be agreed/adopted
when contract is formed, not imposed later.


Case studies revisited

The informal – and seemingly innocuous - brief

“I created a one-off design for an old
acquaintance…now he wants to mass-produce
the design, without paying me royalties.”
“But I put my copyright notice on the bottom of the
design…”


The free pitch

“My client asked me for some basic concept
designs, before deciding whether to formally
engage me as designer. The client decided to
use someone else, but is using my concepts
without paying anything.
When I asked for payment, the (ex) client has
now claimed that it owns copyright in the concept
drawings.”


The Disputed Terms of Trade

“I produced some designs for a client, who is
now claiming that the designs are flawed and
demanding that I pay for damages including lost
profits and project delays, even though these
damages are excluded in my terms of trade.
“My terms of trade are on the back of my invoice,
which the client has already received and paid.”


Designers Institute Contracts


Important things to include in
your contract:
– Specific details of work required (to avoid scope-
creep or subsequent disputes)
– Payment terms
– Intellectual Property protection
– Indemnity for materials provided by Client
– Use of contractors (including 3rd party contractors)
– Limiting legal liability, including for suppliers’ acts
– Retention of title in goods until payment

Important things to include in
your contract:
– Late payment rights and procedures
– Notice of defects procedures and expiry
– Agreement termination provisions
– Dispute Resolution Procedures
– Entire Agreement
– And others!


Limiting Designer’s Risk
Potential risks include:
A. Claims of defective design works
B. Client refuses to pay you
C. Non-performance by third-party suppliers
D. Breach of third-party copyright
E. Archiving/Backups


New 2012 Contract Set:

1. Spatial Design
2. Procurement Services
3. Product Design
4. Graphics/ Interactive Design
5. Non-Disclosure / Confidentiality Agreement
6. Contractor Agreement

Designers Institute Contracts –
Liability Limitations/Exclusions, including:
A. Limit amount of liability for claims by Client to amount
paid for contract, plus contracting out of the Consumer
Guarantees Act 1993 where the client is obtaining
services for business purposes;
B. License dependent on payment, retention of title in
goods until payment, plus late payment interest;
C. Specific indemnity for materials provided by client;
D. No responsibility for 3rd party suppliers engaged by (or
at the request of) the Client;
E. No obligation for archiving/backups by designer.

Core Commercial Terms

• Notice of defects/complaints mechanism and dispute resolution;
• Fees and payment,
• Payment within 10 days of invoice
• Late payment interest at 2% per month
• Retention of title (work product) pending payment;
• Security Interest (PPSA) in goods supplied to Client


Core Commercial Terms
• Employees and Contractors:
• Acceptance of contractor use;
• Non-solicitation of contractors and employees;
• Termination provisions
• General/boilerplate clauses
• Remedial Services


Graphics/Interactive and Product Design
Contracts: Core IP Terms
Core intellectual property terms, including:
• Default IP Licence (unless alternative option selected – see next
slide)
• Preliminary art / tools/ working drafts / technical files and non-
final products, including plans and sketches, remain property of
designer and are not licensed or transferred to the client
• Client warranty for use of client-supplied intellectual property
• Client confidentiality where requested
• No DRM removal/interference


Graphics/Interactive and Product Design
Contracts: Optional IP Terms

A. Limited usage, non-assignable, conditional license dependent
on payment. Client may not modify or reproduce work.
B. License for unlimited usage, exclusive, non-assignable,
dependent on payment. Client may not modify work
C. Unlimited usage, client may both reproduce and modify work,
exclusive non-assignable, dependent on payment.
D. Full transfer of all intellectual property dependent on payment.
Client has full rights to modify/reproduce work. Designer reserves
promo/portfolio usage rights.


Protecting your IP –
Dealing with Clients
How to explain to your clients why it is
appropriate for you to retain IP in your
designs …



1. A design for a particular client is often a derivative
of earlier designs varied to client’s particular
requirement. Impractical for copyright to vest with
client.
2. A licence is ample for one item. Paying for
unlimited use of a design would be costly – client
would be paying for use that they do not need e.g.
buying a car to make one journey when you could
have hired a car for a fraction of the cost.



3. Clients benefit from experience of designer →
the design fee for a derivative design is lower
than full design costs. Client benefits from
earlier works, which are already copyrighted.
In summary, lower costs and efficiencies are
achieved, a client still receives tailored design
for their use, with copyright retained by
designer.



4. If client wishes to use the design for production
of multiple items, that can easily be agreed at
outset, or in due course, by negotiation
5. Reputation of designer (quality)
6. Designer retains control of quantities in
use/production (enables designer to preserve
exclusivity/limited nature of design, which
benefits licensees)



7. Designer often better placed, and better
motivated, to protect and enforce copyright
if breached, which again benefits lawful
licensees.


Initial Tender / Pitching
Practical ways to secure your IP before pitching:
• Non-Disclosure/Confidentiality Agreement;
– E.g. Designers Institute Non-Disclosure Agreement
• Expressly reserve ownership of copyright (i.e.
expressly contract out of Commissioning Rule); and
• Agree in advance that the client may obtain a license
only if the designer is formally retained and paid.


Designers Institute
Non-Disclosure Agreement
• “Fill in the gaps” – party and project names
• Protects both designer and
client/supplier/manufacturer etc
• Provides for confidentiality in discussions
• All information disclosed remains the
property of the disclosing party


Procurement Services Agreement

Procurement services can include:
Consulting with Client on procurement needs;
Researching/presenting potential supplier
information to Client; Negotiating with potential
suppliers; Call and receive quotations; Evaluate
and report to Client on quotations; Confirm
Client’s decision on selected supplier(s); Notify
selected and unsuccessful suppliers; Manage the
supply and delivery process; etc…


Procurement Services
Agreement
The Client appoints the Designer to be the Client’s
agent for the procurement of the Goods and
Services. The Designer is authorised to provide
the Procurement Services on behalf of the Client,
including negotiating and signing contracts with
suppliers (Clause 3(a))
The Designer may accept and retain commissions
from any suppliers (Clause 18)


Further Resources

www.clendons.co.nz

www.dinz.org.nz


Design Law 2013

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