In the past few years design contracts have turned uglyat
least from the designer's standpoint.
Clients now are routinely demanding that designers sign their lives
away as the price for doing business. Design firms can spend thousands
of dollars annually on legal feesoften hammering out the same
issues with each new client over and overbut the worst part
is that many designers are unaware of the huge risks they take in
signing client contracts. Misunderstood Intellectual Property and
Indemnification terms can put design consultancies at tremendous
legal risk, and, until now, there has been no industry-endorsed
set of guidelines to point out the pitfalls and provide guidance.
In the fall of 2002, the principles and senior managers of 12 esteemed
US product and industrial design firms met under the auspices of
the Association of Professional Design Firms (APDF) for a Terms
& Conditions Summit. The goal of the Summit was to produce a
draft of a terms document resulting from the brain trust of those
12 firms and with the input of legal counsel.
This initiative was the brainchild of David Franchino, Managing
Director, Design Concepts, Inc. who saw the project as a potential
benefit to his own company, APDF members, and to the design industry.
Prior to the Summit, the participating firms had shared their own
terms and conditions. David had compiled them and reduced them to
the salient points that needed focus, detailing and clarification.
During the two-day Summit the group worked through each point, and
new language was developed, including a white paper appearing along
side the main text which adds insight and options as negotiating
Afterwards, the draft was reviewed and edited by lawyers working with APDF
Board Director Tom McLinden of Evo Design, who was managing the project for
the organization. The text was reviewed by APDF as well as by IDSA as part of their consideration of endorsement, which they subsequently provided. With the additional input, the draft was made final and the document was published
in PDF form and released for sale in September of 2004.
Now that the project is compete, Core77 invited all the participants
to reflect on the process, and while all 12 participating firms
had remained anonymous until nowfor reasons discussed belowfive
have elected to go public for this article, sharing their experiences
CORE77: What convinced you to participate in the project of
putting together a set of terms and conditions for the design consulting
community, given the obvious challenges and potential pitfalls?
GERARD: Many people in our industry are concerned about the threat
of offshore competition. But the biggest threat to the industry
might in fact come from the contracts we are signing without understanding
the implications or believing that nothing bad can result. I felt
it was important to get together to see if we could create a document
that was fair to both consultant and client.
CURT: Sundberg-Ferar had been quickly coming to the realization
that we were signing contracts which were, in effect, locking us
out of certain industries because we had been selling an inappropriate
amount of intellectual property that would never be used by anyone.
Additionally, we realized that we had, in the past, taken on some
pretty ridiculous liabilities regarding product safety and patent
infringement; liabilities that could potentially put us out of business.
LISA: As a newcomer to this specific industry, I thought it was
extremely important to find out if the issues we were coming up
against in this area were common. I had spent the previous year
with our legal counsel going through the issues to our satisfaction,
but felt we needed an industry perspective.
DAVID: Our desire to address our own terms and conditions had been
prompted, in part, by the observation that our clients are becoming
more aggressive in terms of seeking customized, and frequently,
in my opinion, unbalanced, terms and conditions. From our perspective,
this has the following negative impacts:
We spend significant time and effort reading, interpreting and negotiating contracts on a per-client basis; time we'd all prefer to spend doing great design. In the case of larger, more complex contracts, they frequently involved
professional legal council that can be expensive and seldom makes anyone but our lawyers happy.
Also, we were seeing an increasing trend towards terms and conditions, drafted by our clients, attempting to negate our own terms and conditions and containing language heavily biased away from our interests. In my experience, the
most troublesome terms had fallen into three distinct areas:
- Clients who wanted us to 'guarantee' intellectual property to
the extent that they want assurances that any concepts or designs
developed will not infringe on existing patents, or will, themselves,
- Clients who wanted us to 'guarantee' the performance of a design
on a development effort where the specifications are vague or poorly
understood, and concept feasibility has not yet been established.
- Clients who wanted us to indemnify them for any and all liability
associated with their product performance.
In addition to these three, there were probably other points of lesser contention, including non-competes, exclusivity, rights to articles of work, etc. I suspect that each of people participating in this initiative had a rather
lengthy laundry list of horror stories. Indeed, the genesis of the project was prompted by a contract I'd been asked to sign which says, in essence, "Your design will conform to any specifications we have, and, if we don't
have any specifications, it will conform to anything we decide it should at a later date." No exaggeration. When I told my contact I thought that was a bit unreasonable, his response was "If you don't sign it, I'll just
find someone else who will."
CORE 77: Did the open sharing in a group of your competitors
give you pause?
LISA: Quite the opposite. The way this group interacted, shared,
discussed, re-worked, and listened was pretty great to watch. It
was my first experience with other firms in the industry, and it
was a great first impression.
CURT: I am amazed at how quickly and effectively we can draw the
line between sharing vs. ethical/legal/corporate responsibility.
TOM: The APDF is famous for competitive firms collaborating for
the advantage of all. This was a great example of that in action.
CORE 77: There was a concerted effort to keep the participants
of this project anonymous. And given the nature of the legal beast
here, those instincts seem reasonable. But perhaps you could comment
more on the reasons for anonymity?
CURT: This is a sensitive subject that could potentially give a
firm the reputation (with clients) of being prima donnas or hard
to deal with. Ironically, we have found that, in the end,
clients appreciate our thoroughness and attention to detail when
negotiating a contractand corporate attorneys seem to respect
TOM: I dont think there was a real effort to stay anonymous,
just a sense that the effort would have power if it was seen as
industry wide rather than being associated with the name or names
of specific firms.
DAVID: I think there were a number of reasons. Perhaps we were subconsciously
worried the whole thing would bomb and wanted the flexibility of
distancing ourselves from the smoking wreckage. There was some initial
nervousness on my standpoint as to whether our clients would find
out what we were attempting and view it as an effort to collectively
bargain or worse, collude. These proved unfounded as we later
found plenty of examples of adjacent industries that do a far better
job of organizing and leveraging their efforts.
In addition, I think both clients and consultants are frustrated
by the time and expense of having to individually negotiate terms
and conditions and would prefer to spend their time and efforts
on more productive tasks. In some aspects, I suspect the team has
distanced themselves from the results because we do believe that
all weve done is collectively articulate the best practices
of what is unfortunately a fairly fragmented industry. From our
own selfish perspective it was crucial to be able to feel, in good
faith, that the resulting product really did represent an industry
perspective and was not the localized effort of a few firms. This
adds additional credibility when we use the document during negotiations.
CORE 77: What was the most unanticipated aspect of the process?
TOM: I thought meeting in Madison Wisconsin was notable. I said after a while, This is going to end up being in Chicago right? and they said No, Madison, really. The other thing was the caliber of people
in the room. I felt like we were writing the Declaration of Independence, with Adams, Jefferson, Monroe and the rest. As has become the case I found myself both inspired and intimidated by the collective intellect of the individuals
who make up my competition. I know that we embrace and cultivate the perception of design firm principals being unsophisticated in business matters, but the reality is that this industry is filled with exceptionally sharp folks
with keen intellect and sound instincts. Re-affirming this is predictably satisfying. It was tremendously gratifying to see that a group of very busy, important and focused individuals were willing to give the time and effort to
DAVID: I dont think there were any unanticipated aspects other
than the usual suspects that arise when creative people collaborate.
I think we were all somewhat amused to learn how similar all of
our individual terms and conditions were. This was funny/sad relative
to the realization of just how much money we had collectively paid
our individual attorneys to develop them.
GERARD: The funniest part was passing the document by our attorney.
He once told me he was like a wolfleaving his scent in the
documents he writes. I knew he would find all kinds of problems
with the document our group created.
CORE77: With a bit of distance from the project, knowing then
what you know now, how would you have done this differently?
TOM: Someone said including the client in the development of the
terms. I'm not sure that would have worked the first time around
but I think it would be a great idea now. So often when I talk with
client lawyers I find that we agree in principal. Finding the right
words to keep both sides happy is the tricky part.
LISA: In my opinion, I don't think we should change a thing. Each
of us will have items within our company that we may wish we could
"do-over," but not this.
GERARD: The only thing I would changed would have been to include some experts from the insurance industry. Some of our clients' procurement groups would like design firms to cover all of the design liability issues, many of which
are beyond the control of the firms. We are in effect providing liability insurance. It would be useful to have a number of insurance brokers/policies identified. We could then direct clients to them (or purchase the insurance ourselves
and pass the cost on.) If the insurance is not even available (as seems to be the case with IP infringement insurance), it strengthens a design firm's position for not assuming the liability.
CORE77: This project is a great example of a collectively produced 'best practices' guide. Historically the ID industry is loathe to share information like this among competitors. Are there any other areas of operations that
might benefit from a collaborative process like this?
DAVID: Hmmm...not sure I agree that the ID industry is loathe to
share information. I've actually found people to be quite open.
I would be interested in efforts to share best practices in terms
of project accounting and tracking, cost management, client billing
In some aspects, if we were to develop a more consistent industry-wide
position, our clients would collectively benefit and the client/consultant
interface might be easier to manage.
TOM: Designers have typically been very weary of their competitors,
not so in the APDF where the culture is one of sharing information
for the good of all involved. APDF publishes its Financial Performance
Surveycurrently for its membersbut the 2005 edition
is slated to include members and nonmembers alike. Given the depth
and breadth of all or our experience, there is no limit to the areas
where a sharing of best practices would be greatly beneficial, to
each of us and the industry as a whole.
LISA: At this time I believe we have most of the operational items covered through the APDF. We have forums regarding sales, general business practice, royalties & licensing, and project management. The financial side is covered
through the Financial Performance Survey and any financial forums we have had over the last couple of years. All participants in the APDF are very comfortable with sharing, we just need more members in the APDF to widen our perspective
on these operational issues.
CORE 77: So now that the "Terms and Conditions Reference
For Product Design Consultants" is published, do you use the
LISA: I have been using what came out of our meetings since the
day I returned to the office. When I was finally able to send the
final piece out, I received some great reactions from our staff.
GERARD: Most of our clients have their own contracts. However,
exposure to developing the T&Cs has helped us become more aware
of issues and we have referred to the white paper to develop rationales
for positions we have taken.
DAVID: As one of the originators of this effort, I dont think
we ever envisioned that established firms would use the terms in
a boilerplate fashion. New firms could presumably just adopt the
terms and be off and running, but most established firms will have
idiosyncrasies tied into firm-specific issues such as payment, etc.
For us, and presumably for other firms, the real power is in being
able to state that our current terms and conditions are based
on industry accepted terms developed by APDF and endorsed by IDSA.
We have found that during negotiations, being able to state that
our position will be identical to those of any of the APDF member
firms carries tremendous power. Towards that end, anything we can
collectively do to drive these further into the fabric of our industry
will only help.
CORE 77: Looking back, what was the most valuable thing you got
from participating in this initiative?
LISA: The knowledge that each firm has the same issues. We all
may approach them in a different manner depending on size, age of
firm, risk/reward, but we will all need to address them. I trust
that as new issues come up in our industry we will update this wonderful
document so that it stays current and useful.
DAVID: First and foremost was the opportunity to make new friendships
and renew existing ones. Relative to the exercise I gained tremendous
confidence when negotiating on certain key issues, knowing that
competitive firms are grappling with the same issues and taking
the same stance. The document has provided me with important ammunition
in being able to make an articulate case with our clientsand
being able to get them to understand the rationale for the stance
>>Get a sample page from the APDF Product T&C
||The Product Terms & Conditions are offered for sale at www.apdf.org, discounted to APDF and IDSA
members ($149/members, $249/non-members). APDF charges for this document for two reasons: The first is the real value of the documentas the serious and extremely valuable business tool that it is. The second is that, as
a business itself, APDF looks to raise funds that will allow it to continue doing good works such as this for the benefit of its members and the design industry as a whole. APDF offers the Product T&C at a remarkably discounted
rate specifically so that it will reach as wide an audience and use as possible.
As use of the APDF Product T&C is growing, APDF has received numerous positive comments. One firm now using the document reported:
"During re-negotiation with our client of many years the intellectual property (IP) issue came up for the first time. The client was bound and determined that we accept all responsibility for all designs. We were finally able
to reach an end to this particular discussion (our last point to clear for the contract) with a letter from our counsel explaining our point of view that contained some of the items from the white paper portion of the Product T&C
as well as the contractual wording. The clincher was the reference to an 'industry standard' set forth by the APDF and the IDSA. It is amazing what happens when we establish an 'industry standard'!"
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