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Tag: contracts

Limitation of Liability Clauses – You Definitely Want One, But Why?

Over El Paso and Ciudad Juarez

Over El Paso and Ciudad Juarez

Many sophisticated business contracts contain limitation of liability clauses. By contractually limiting your liability, you can better plan for your level of exposure in the event something goes wrong. Limitation of liability provisions can be helpful risk management tools if drafted correctly.

First, limitation of liability clauses often limit the amount of liability to which you can be exposed in connection with the contract at hand. This can be done by specifying an actual dollar amount as a liability maximum, but such a limitation may also expressed as a fraction of the amount exchanged in the contract. For example, parties to a licensing agreement may provide that the liability of either party will not exceed the amount of royalties earned during the most recent year during the contract term.

Additionally, limitation of liability clauses frequently limit the type of liability to which a party can be exposed. This is commonly done by prohibiting either party from incurring special, consequential, incidental, punitive, or indirect damages. Limitation of liability clauses may also exclude damages for lost profits or interruption of business. Essentially, the goal is to limit a party’s ability to collect with respect to any damages or other losses that are not directly caused by the party at fault. For example, imagine that a plumber tasked with installing new sinks in a restaurant bathroom accidentally causes a pipe to burst and floods a significant portion of the restaurant. The restaurant must close for 2 days while the flooding is mitigated. If the plumber has excluded the restaurant’s ability to collect lost profits or other indirect damages, the plumber may be responsible for fixing the broken pipe and cleaning up the water, but she will not be liable for any profits lost by the restaurant resulting from the 2-day closure.

In negotiating limitation of liability clauses, note that sophisticated parties often ask for “carve-outs”, a.k.a. certain bad acts to which the limitations will not apply. The most common carve-outs are gross negligence, fraud, and willful misconduct. However, a party may also ask for more specific carve-outs if they are particularly concerned about certain risks, like intellectual property infringement, breaches of confidentiality obligations, or security incidents.

Finally, note that certain liability limitations may be prohibited by law, so you should consult with your attorney to determine whether there are any restrictions on limitations of liability in your jurisdiction that might be applicable.

Who owns my logo? The graphic design company that developed it or me?

You may have hired a graphic artist or agency to develop your company’s logo. Do you know who owns the rights in it?

There are two main types of intellectual property rights that can reside in a logo: copyright and trademark. Copyright protects an original work of authorship fixed in tangible means of expression; typically, a creative or artistic piece that is drawn, painted, saved, or otherwise recorded. Trademark rights protect the use of a symbol or identifier in connection with the sale or advertisement of a product or service.

Copyright usually vests in the person that created the work. However, when someone is hired by another to develop a work, the copyright may be owned by the employer or hiring party. Generally, in standard salary-based employment relationships, the employer will own copyright in works produced by the employee. But a graphic artist hired to develop a logo isn’t a standard employee – he or she is an independent contractor. The fact that the work is being produced expressly for the company’s use as an emblem for its identity likely weighs toward finding that the company is the owner of the copyright in the work, but it doesn’t provide a guarantee. A contract should be in place between the company and the graphic artist defining the relationship, and it should also cover the copyright in the work(s) produced.

Why is copyright a concern? Technically, if it were determined that the graphic artist retained ownership in the copyright, then the company would be infringing that copyright each time it used the work as its logo (absent a licensing agreement). Ouch. Or, if the company wanted to make a similar logo with a few slight differences, that newer logo could be considered an infringing derivative work of the original. Losing control of the copyright effectively equates to a loss of the ability to use and develop the logo.

Trademark rights are more clear-cut. Trademark rights arise only where there is use. While the graphic artist may have developed the logo, she did not use it in a trademark sense; in other words, she did not advertise a product with the mark affixed or sell an item that carried the logo. She has merely created the mark, and creation alone does not spawn trademark rights. Therefore, trademark concerns shouldn’t be too problematic when using a graphic artist to develop a logo.

Nevertheless, make sure that the contract with the graphic artist deals with trademark rights. There isn’t a reason for the graphic artist to hold onto any copyright or trademark rights that might arise in the work she creates. Her business isn’t holding copyright and trademark lawsuits over people’s heads; it is helping people develop creative and effective logos for their businesses.