Sometimes, the founders of a fashion startup are better at maintaining business affairs than the creative design process. For these clients, we find ourselves helping to contract out the design process. When working with designers as independent contractors, here are some topics to discuss with the designers and to cover within the contracts that will govern your relationships. As with all our posts, this blog is meant to give you general information, but if you would like to discuss your situation with us, please email Rachel at [email protected].

1. Who Owns The Copyright? 

At the start of the relationship, you and the designer should discuss the ownership of the copyright of the design.  A copyright is a bundle of rights related to the design: right to reproduce, right to prepare derivative works, right to distribute copies, right to perform, and right to display.  When the designer creates a work of art, she automatically has a copyright on the design. You can request the complete bundle of rights, and ask for a copyright assignment, meaning that you will own the copyright, or you can ask for one or more of the rights within the bundle.  The designer is able to contractually give away portions of her bundle of rights in intervals of time, exclusivity, and use. For example, a designer may allow the startup to use the design on products, but the designer can also give another company the right to use the design on products. The designer may also choose the time period in which the startup may she her rights, such as allowing a startup the ability to reproduce the work for 5 years.

Be sure to think through these issues:

• How is the startup allowed to use the design?
• Can anyone else including the designer use the design while the startup has rights to the design?
• How can someone else including the designer use the design?
• How long can the startup use the design?

While it may seem tempting at first to think that you want all the rights, and that you want to be owner of the copyright, consider if that is truly in your best interest, and in the interest of a long term relationship with your designer. Thinking carefully through which rights you’ll use, and having an open discussion with your designer about her intention to use the design for other works will help you both decide what is the best way to split us the rights.

Sometimes it makes sense for you to buy the the copyright, such as the case of a jewelry design, where you don’t want competitors to be able to gain access to the design. Other times it may not make sense to buy the whole copyright. Imagine you find a graffiti mural that you love. You contact the designer to see if you can make clothing with elements of the graffiti mural as the textile design.  You may not want the whole copyright bundle of rights if the designer can do a better job at connecting with other businesses to make the graffiti mural more popular, such as through a business that can make canvas prints of the mural for home decor.  You may just want to add a restriction into the contract, stating that the designer will not license out the right to use the copyrighted design on any clothing items to others. In this discussion, consider if you want to be the only one who is allowed to use the design, and if you want the designer herself to be prevented from using the design on other products in the future as well. The more you think through these questions carefully, the more you and the designer will be able to negotiate over a fair price for the rights being licensed or purchased.

2. How Will Designs Be Inspired & Approved? 

Often, one of the most difficult challenges a startup faces when working with a designer is being able to articulate what aspects the design should have and what goals the design should achieve. Imagine, you have a startup that wants to capture the attention of a particular audience, and you likely even have a rough idea of what you desire your products to look like. Some startups like to give general goals for the product design, and then ask the designer to create a few “options,” meaning a few designs where the startup gets to then choose which one use. Other times, startups prefer being consulted with during the process, should the design process have several stages. Occasionally, you may find the designer that you wish to work with because you saw a design already completed by her, and now you wish to purchase rights to that already created design. Set the expectations clearly, balancing the desire for control and the necessary room for creative freedom.

Here’s some of the issues to consider under this topic:

• How long will the design process take?
• What are the milestones in the design process?
• When is the startup allowed to give the designer feedback and request changes?
• How many times can the design be changed or edited at the request of the startup?
• What happens if the startup does not approve of the final design ?
• How much time does the startup have at each feedback interval to provide feedback and to request changes?

3. How Will You Pay The Designer?

How you choose to pay the designer will likely depend greatly on the scope of rights and the length of time that you choose to have those rights for. If you are asking to become the owner of the entire copyright, you will likely have a simple agreement where to will pay the designer one lump sum for design, or you will pay the designer installments of a lump sum as the designer completes the design process. For example, a designer may ask for a retainer for 20% of the total fee, followed by 40% due at delivery of the first draft, and 40% due at the final approval stage.

If you and the designer however decide the the designer will continue to hold permanent rights to the work through the copyright, and that you will use them for a temporary period of time, you are then looking at creating a licensing deal. Some licensing deals ask for a fixed payment price, due repeatedly, at certain intervals, such as once a month or once a year. However, other licensing deals base payment to the design on the sales performance of the merchandise with the design. If the designer is confident in her design, and the startup has limited capital to pay the designer upfront, this can be a good arrangement. The startup can offer a percentage of net sales or net profit to the designer. Be careful with this option though, you and the designer must clearly define how the percentage will be calculated, making clear distinctions if the fee will be calculated on the sale price (what the customer paid for the item) or the profit (how much the startup earned on the sale of the item), of sale price verses profit, how to include discounted or given away merchandise, and if returns or exchanges will be deducted.

Some issues to discuss under this topic:

• Will the designer receive a percentage of net sales or net profit?
• How is net profit or net sales calculated per item?
• Is payment adjusted if a customer returns an merchandise?
• Who decides what price to sell the merchandise for?
• Can the startup give away items with the design or discount the merchandise?
• How often will the designer be paid and how will that payment be delivered?
• Can the design audit the sales of the startup to check if the calculation of royalty payment is accurate?

This blog article is only the a starting point for creating the discussion you will likely have with a designer when trying to create a mutually beneficial independent contractor relationship. While these three topics are often the bulk of the negotiation, there’s plenty of other topics you’ll need to address before creating a clear contract governing your relationship. Please contact Law On The Runway if you need would like more information on independent contractor relationships, [email protected]