In today’s parlance, a design agreement (sometimes confused with a design retainer contract) is a contract in which one party (the developer) agrees to design, develop, and perhaps maintain an Internet website for a second party (the client). Confusingly, design agreements may also refer to designing and building (”design-build agreement”) houses or other structures. What is more, a design agreement (which is sometimes confused with a design retainer contract) may simply be a contract between a graphic designer and a client for the development of an artistic creation, such as a sculpture or a piece of artwork.

The version pertaining to the digital world has perhaps become the most prevalent of all varieties in the last few years, as the Internet continues to boom and websites proliferate. In this iteration, a client engages a developer to create an Internet website. The relationship between the parties is usually one of owner and independent contractor and oftentimes ends as soon as the developer has completed the design and implementation of the website. Sometimes, however, the client may request not only the initial design services but also continuing maintenance services. Further, the client may seek to have the website hosted on the developer’s servers, as opposed to a third party’s servers. If the latter case, the client will authorize the developer to access, for the duration of the performance of the services, the client’s space on the third party’s servers.

The scope of work defines much of the other elements of the agreement. Once the design is agreed upon, the other provisions fall into place. Cost is a big one. Generic website designs may be accomplished for a flat fee, while more intricate, labor-intensive designs will likely call for hourly rates. Sometimes agreements display a mix of both. As was mentioned above, some agreements may incorporate not only fees for the design but also costs for continuing maintenance and/or hosting services.

Intellectual property rights are perhaps equal to cost in terms of significance. One question to answer is who will own the intellectual property rights to the website, notably the site’s source code. One would think that the client would be the owner, but this is not always the case, particularly where the developer has greater bargaining power or particularly new and unique technology. In most cases, however, assuming the website is launched, the client owns all right and title to the intellectual property developed in the creation of the website. Early termination of the agreement may allow the intellectual property rights to remain with the developer, subject, of course, to confidentiality provisions.

If the developer warrants its services and the website (many agreements have no warranties of any kind), the warranty will be relatively brief, only 30 to 90 days and state that the website will be bug-free for such time. If, however, the client makes modifications to the website during this period, then this warranty may evaporate. Further, design agreements limit any developer liability for losses suffered by the client.

The key provisions to design agreements (which are sometimes confused with design retainer contracts) are and will likely remain the scope of work, cost, intellectual property, and termination. These provisions must be clear between the parties to have an effective design agreement.

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Extra! Extra! Read all about the law firms currently hiring. Yes, you heard right. Despite the economy meltdown, intellectual property work is still up and running and law firms are currently hiring lawyers.

Rising demand from clients for enforcement of patents and general counseling in the area, Merchant & Gould; Wildman, Harrold, Allen & Dixon; and McAndrews, Held & Malloy are a few of the firms who have recently added new lawyers to their growing team.

“So far, we’ve been insulated from what other law firms are experiencing out there,” said Merchant & Gould Managing Director Randall King, referring to the financial turmoil that has caused some firms to lay off lawyers, implement hiring freezes or disband altogether. “Generally, I think IP firms are somewhat insulated.”

Needing defense against “patent trolls” and wanting to protect their patents from rivals to “ensure the revenue that flows from them,” patent litigation work is continuously picking up and has been in the past six months.

“We have not deviated from our model whatsoever in light of the economic crunch,” said John Letchinger, the chairman of Chicago-based Wildman’s intellectual property practice. “We’re not finding our clients shying away from investing in intellectual property.”

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Intellectual property can have value in the form of a copyright, trademark, or patent. A copyright is protection for artistic and creative works. The holder of a copyright owns certain exclusive rights in the work, such as the right to distribute, copy, or display the work. A trademark is obtained for a unique and valuable logo, phrase, or mark used in commerce. Trademark law is based on the concept of “substantial similarity”, whereby another cannot use a mark that is substantially similar to another’s registered trademark. Patent law protects inventions or processes with physical or scientific implications. Patent protection, while more difficult and expensive to obtain then copyright or trademark protection, is very broad and exclusive, and provides for severe remedies upon breach.

An Intellectual Property Assignment and License Agreement is a unique agreement. In these agreements, one party is selling to the other the rights to their copyright, trademark or patent. However, since the selling party still wishes to retain the right to use the copyright, trademark, or patent for themselves, they ask for a “license back” to the property. Thus spawns the Intellectual Property Assignment and License Agreement, which in a sense, is actually two agreements in one.

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For many companies, their intellectual property - such as processes, customer lists, trademarks, copyrights, or patents - may be their most valuable asset. In instances of a sale or liquidation of a company, a valuation of this intellectual property must take place. This valuation process complex, since intellectual property is intangible, and its value will change over time (typically downward).

There are three primary ways to arrive at the value of intellectual property: Cost, Market, and Discounted Cash Flow.

• Cost - This method asks what it would cost someone else to duplicate the intellectual property if they had to start from scratch. What people would they have to hire? What equipment would they have to rent or buy? What research would they have to perform? What information would they have to gather?

• Market - This method looks at other transfers of similar property for which the price is known and makes adjustments to determine what this property is worth. This method would yield accurate results if you really could apply it, because you would be (presumably) evaluating arm’s length transactions involving well-informed buyers spending real money and well-informed sellers actually giving up their hard-won assets.
• Capitalization of cash flows - This method looks at all the benefits of owning the intellectual property and discounts them to present value. Although it’s the most complex, it’s also probably the most accurate and the most ascertainable. This approach considers all the benefits of owning the intellectual property and considers all the possible uses for the property.

These three approaches are often used in valuing Intellectual Property. Upon liquidation, the bankruptcy trustee will be the one to decide which valuation to use.

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