Disclaimer: This information is true and accurate as of the dates specified, to the best of our knowledge and belief, and is provided by the Graphic Artists Guild to help artists make informed choices.

 

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G R A P H I C A R T I S T S G U I L D

N a t i o n a l C o n t r a c t M o n i t o r

v o l . 2 , n o . 2, p a r t 1

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July, 1999

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IN THIS ISSUE:

-FAQ'S ABOUT STOCK ART: The Basics

-SIS

Stock Illustration Source (SIS) contract commentary.

We're taking a detailed look at a contract everyone's been talking about.

Should you sign? Read the fine print with us and decide for yourself!

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STOCK ART FAQs: Two Basics

What is stock art?

Stock art is existing artwork created for a prior assignment or as

self-generated work, which is marketed to a variety of clients for

additional uses (reuse). The artist retains control over the uses

to which the art will be put by selling limited rights to individual

clients. Remember that you, the artist, need to retain the rights

to your work in order to resell the work as stock to others.

How does an artist sell the rights to existing art as stock art?

There are two ways for an artist to sell stock art rights. One is to

create your own stock catalogue, web site, or CD-ROMs and sell

your stock directly to clients through mass mailings and other

self-promotion techniques. The other is to sign up with a stock

illustration agency, which will market the images for you. Typically,

the artist pays a fee for making transparencies and advertising each

image in the agency's catalogue. Profits from the sale of reuse rights

are usually split between artist and agency according to a formula

determined by the contract between the parties.

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STOCK CONTRACTS: What Works, What Doesn't?

The Great Stock Wars show no signs of abating, so we thought it was time

to take a cold, hard look at contracts currently in circulation in the

field. In Part One of this issue, we analyze a contract from the Stock

Illustration Source (SIS). Part Two, which will be in your mail box in

two weeks, will cover theispot a service which posts to the Internet.

To sell or not sell your work as stock is a thorny issue. Educate yourself!

Our aim, as always, is to shed light on the good, the bad and the ugly in

contracts. The decision to sign or not to sign is yours, but we want to

make sure you understand all the implications of this type of sale.

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Stock Illustration Source (SIS) "Spots on the Spot" Contract

SIS was founded six years ago by Ian Gunn, who came out of advertising, and

Marie-Christine Matter, who was a sales representative for a talent source

book. The terms of the "Spots on the Spot" Contract have been called

"unreasonable" by many artists and yet illustrators have signed! Here

are the clauses that the Monitor found to be the most dangerous for artists.

To give a fair idea of the client's concerns with this type of contract we

are including Ian Gunn's commentary on the clauses. Why? Good negotiation

strategy begins with understanding the client's motivations as well as your

own. The Monitor cautions you, though, to draw the line when a client's

policy is harmful to your work.

THE CLAUSES

1. Grant of Authority...

"Artist hereby irrevocably appoints Agency, for the term of this

Agreement, the exclusive agent and representative for licensing and

granting of all rights in the artist's illustrations published in Spots

throughout the world in all media, whether now known or hereinafter

developed. Such grant of rights shall include, without limitation,

in the Agency's discretion: the right to license, market, sell, assign,

or lease any and/or all rights in the Illustrations; to make the

illustrations available on electronic, CD-ROM and/or similar media;

the right to grant motion picture, television, video, cable, radio,

cartoon and/or character rights in the Illustrations; and the right

to include the Illustrations in Agency's catalog(s) in all forms.

Agency shall have the sole and complete discretion to negotiate and

determine the terms of such reproduction and/or use, without any

requirement to consult with Artist. Agency shall be entitled to grant

rights in any of the Illustrations for a period of time in excess

of the term of this agreement."

SIS is saying upfront that if you file a spot with them, then they want the

exclusive on it in all arenas of sale. Fair enough at first glance.

But look again...this paragraph contains major problems for the artist.

First Problem: Irrevocability.

The artist cannot terminate or rescind this contract for the entire 5 year

term plus any extensions and /or renewals.

Ian Gunn, of SIS, responds that irrevocability is necessary for both the

artist and SIS to have time to recoup their considerable investment, and

because art directors and designers want the catalogs on their shelves to

be "live" for as long as possible.

Is five years a reasonable amount of time to consider staying under

contract in a field where styles change yearly? Many business relationships

set a one to two-year limit, a reasonable period of time to evaluate

service between two parties. The Monitor asks whether artists want stock

in circulation for five years when an older style can prove potentially

harmful to the artist's current portfolio.

Second Problem:

Artists are given no control over the pricing and usage of

their work, over an indeterminate period of time. SIS becomes the

exclusive agent and representative for licensing and granting of all

rights in the artist's illustrations published in Spots throughout the

world in all media, whether now known or hereinafter developed.

This means that you, "the artist," can only sell rights and usages to the

images included under the auspices of this contract through SIS. Even if

you have previously included one of the images covered under this

contract in, for instance, your own individual directory ad or mailing piece,

and you are contacted directly by the client. Any sale or license of

rights for contract images must go through SIS.

And, SIS has the right to take their 50% commission on any such sale. Hmmm...

Ian Gunn claims exclusivity is essential because of "the scale of our

investment." However, the Monitor would caution artists to consider the

scale of their own investment and the amount of control that entitles them

too. Artists Reps typically allow for "House Accounts." We think a more

reasonable compromise could be struck.

Next Problem:

"Agency shall have the sole and complete discretion to negotiate

and determine the terms of such reproduction and/or use, without any

requirement to consult with Artist."

Here, the Artist gives up the right to set the price for his or her own

images. Pricing is determined by SIS and the client. SIS is not obliged to

consult the artist on prices or on terms of usage--so the artist's images

can be used for any purpose, and at any price, under the terms of this clause.

Gunn explains that individual artists are impossible to reach, and adds

that "it's in our own best interest to obtain the best possible price."

Well, Artists Reps have no problem reaching their clients to discuss terms

on a sale. If, by some off-chance, SIS images are sold at prices that do not

accurately reflect their true value in the marketplace...this could have the

unwanted result of affecting the pricing structure of the artist's

commissioned work. Mr. Gunn says SIS actually generates assignments, and

contends that "if there were fewer commissions available, the volume of our

assignments would be declining," which, he says, it is not.

He did not, however, explain how it is that foreign periodical

rights are frequently licensed for fees of less than $100.

In addition, without prior approval, artists could find their images used

in conjunction with causes, products or companies with whom they might not

ordinarily choose to do business--for instance, tobacco advertising, or

promoting the activities of the NRA.

Gunn points out that he excludes hate groups and pornography, and adds

that artists can specify their own exclusions. However this is not clearly

stated as policy in the contract which give SIS a great deal of decision

making-power. And...the artist has no recourse within the wording of the

contract.

Still Another Problem:

"Agency shall be entitled to grant rights in any of the Illustrations for

a period of time in excess of the term of this agreement."

The term of the contract is five years, but the rights granted by SIS can

exceed this 5-year term. The artist could find him/herself committed to a

ten-year deal on an image under this 5-year contract. Again, the artist has

no recourse. Mr. Gunn maintains that to limit the term of license would

eliminate

sales to clients who want long licenses. Such sales, he says, are usually the

most lucrative. Still the Monitor finds the length of open-ended time allotted

through the contract to be excessive.

3. Compensation, and more...

"Agency and Artist shall share equally 50% in any net licensing or

other income received by the Agency for use of the Illustrations"...

...For purposes of this paragraph, net licensing or other income shall

mean gross income from such use, less costs incurred by Agency in

obtaining such income."

Artists should try to avoid agreeing to language as nebulous as this

regarding "costs". After such undefined "costs" are deducted, the artist

could find him/herself earning substantially less than 50% of the fee that

SIS charges the client. Costs incurred by the Agency should be part of the

Agency's cost of doing business. Consider that you, the artist provide the

images, incur all the costs of producing the images (time, labor, supplies,

overhead). In this clause, SIS gets the full benefit of the artist's

abilities and expenditures, without taking on any financial risk.

Plus, there is no definition of what these incurred costs might include.

Will the artist be responsible for paying the costs of the catalog and

website? What about collection costs, in cases where the client

doesn't pay their bills?

Gunn responds that "The artist earns 50% of the net royalty fee. The

exceptions are the costs involved in repatriating money from abroad--

bank charges and currency fluctuations--and SIS shares in these equally."

He also points out that SIS incurs the costs of printing and distribution

of 85,000 catalogues and CD-ROMs, an internet site, etc. But the Monitor

would like to point out that without the artists' images, SIS would have no

content. Using that logic; should SIS also share in the artist's expenses

incurred in creating the original images? Just a thought.

4. Exclusivity...

"Artist agrees not to authorize or permit any third party to use the

Illustrations or rights therein in any way, which would conflict with

Agency's rights under this Agreement. Artist shall be entitled to include

the Illustration(s) in Artist's portfolio and in creative directories.

Artist agrees not to authorize or permit any third party to use the

Illustrations or rights therein in any way which would conflict with

Agency's rights under this Agreement."

We're back to the issue of exclusivity first addressed in Clause 1 of this

agreement. SIS is "exclusive agent and representative for licensing and

granting of all rights in the artist's illustrations published in Spots."

So, whether a client contacts the artist for use of a contract image through

SIS or through the artist's own portfolio or directory pages, SIS is entitled

to their 50% commission on the sale.

According to Mr. Gunn: "Assignments generated through SIS are handled on a

one-time basis and such assignments do not make SIS the artist's agent for

subsequent work with that particular client or any other...The same finder's

fee applies to overseas work."

The Monitor finds it more reasonable that an artist pay an agent a finder's

fee only when the agent has been directly responsible for the attraction of a

client through the agent's efforts and sales materials.

5. Loss or damage...

" Agency shall not be liable to the Artist (or Artist's successors, heirs,

agents or assigns) for any loss, damage or theft of material submitted

to Agency beyond the amount recovered from Agency's insurance company.

It is agreed that the value of the material shall not exceed $450.00 for

each original piece of artwork submitted."

Whoa! Is the artist's original work really worth only $450 per piece?

Mr. Gunn agrees with us that the amount should be higher, but "it was the

maximum amount we were able to obtain from our insurance."

6. Payments...

"The month following receipt of income from the use of...the

Illustrations, Agency shall provide Artist with a statement detailing

the nature of such use, the amount of income received, the Illustration

used and shall include with such statement the amount due Artist."

This clause does not address the point in time at which work is invoiced to

client and the length of time SIS gives clients to pay their invoices. Without

knowing when the work is invoiced and the attendant information (i.e., the

invoice amount), the artist is at an real disadvantage in determining

whether or not he/she is receiving payment in a timely fashion.

There are no provisions for dealing with late or non-payments by clients,

and no provisions for dealing with collections.

Mr. Gunn tells us that SIS's artists statements clearly state the date of the

invoice, the amount, the client, the size and how the image was used. He

adds that SIS has recently begun to send royalty checks twice a month.

We hope that is standard policy and is detailed in a manner available

to both parties.

7. Examining SIS Books and records...

Artist shall be entitled to have his/her financial representative inspect

the books and records of Agency as they relate to the Illustrations, at

Agency's office, during regular business hours, upon reasonable notice."

This is a fair clause. We would like to see an addition, however. A clause

like this often includes a provision for the Agency's payment of the costs

of examining the books, if such an examination uncovers a discrepancy of

more than a certain percentage (usually 5-10%) of all receipts. It would be

very advantageous to include such a clause here, to encourage tidy

bookkeeping on the SIS's part. No comment from Mr. Gunn.

8. Joint protection of Illustrations...

"In the event, during the term of this Agreement, a third party infringes

on the copyright or similar rights in any of the Illustrations, Agency

shall have the right, but not the obligation, to institute an infringement

or other relevant action to protect the Illustration, and Artist shall

cooperate fully therewith. Proceeds, if any, from such action shall be

divided equally between Agency and Artist, after reimbursement to Agency

of all fees (including reasonable attorney's fees), and litigation and

court costs incurred."

Under this clause, SIS is not "required" to help the artist defend his/her

copyrights. However, should SIS decide to do so, the artist is legally

obligated to cooperate. Mr. GGunn feels this is reasonable and states that

SIS has an excellent record of protecting artists' work from infringement.

We applaud that effort!

BUT...what if SIS's attorneys lose such a lawsuit? Who pays the legal fees

and court costs? Mr. Gunn answers that "If SIS loses an infringement suit,

SIS pays all the legal fees and court costs and nothing is paid by the

artist." If that is the SIS policy, why not state it in the contract?

9. Term of Agreement...

"This Agreement shall commence upon the date of signing and shall terminate

on [five years hence]. Agency will notify Artist in writing prior to the

termination of the Agreement, whereupon the Agreement may be extended for a

five-year term upon the written agreement of both parties."

It's a good idea to determine a set period of time--typically, 30 to 60

days--for a renewal notice in a contract, allowing the artist sufficient

time to review whether or nor renewing the contract makes sense.

Also, the method by which notice is delivered to the artist should be

specified. USPS Certified Mail, Return Receipt Requested is a good,

traceable, inexpensive method.

Mr. Gunn says: "Sixty days notification is about what we had in mind."

Again, the Monitor believes that the final arbiter is the wording in the

contract: what's left out is always open to interpretation.

10. Commission after termination...

"For a period of six (6) months after termination of this Agreement in

accordance with paragraph 9, Agency shall be entitled to continue its

representation and agency of the Illustrations... and shall be entitled to

collect its commission thereon...In addition, regardless of termination,

Agency shall be entitled to its commission on all licenses,

assignments or other agreements entered into by Agency during the term

of this Agreement (and the six months described above), and all extensions

and renewals thereof, regardless of whether such income is earned or

received during the term of this Agreement."

The six-month extension makes this a 5 1/2-year contract. Mr.Gunn explains

that this is intended to cover projects that are not concluded until after

the effective end date of the contract. He adds that once the 5 years are up,

SIS no longer sells the artist's images.

11. Advertising and promotion...

"Artist agrees that images in the Spots catalog may be used without

royalties in advertising and public relations activities designed to

promote the use of the spots print and digital catalog(s) and sale of

the artists' illustrations."

This is the first use of the word "royalties" in the contract. Mr. Gunn

defines "royalties" as "the 50% commission the artist earns on each image."

But that is not the standard industry definition of "royalties." A royalty

is usually defined as a set percentage of the net or list price of a piece

of merchandise, like, a book , a greeting card, or a mug. What SIS calls

a "royalty" is in fact a re-use fee or license fee. This clause is saying

that the artist agrees to let SIS use images for free in promotional materials.

Since SIS is paying for the printing and distribution of promotional

materials, the artist's contribution could be considered fair. If however,

SIS is generating materials for resale using an artist's images, then the

artist should be fairly compensated. For this reason we find the term "public

relations activities" to be rather vague. What if one of these activities

turned out to an inappropriate venue for the artist's work?

Mr. Gunn responds that "every artist whose work is used has given us

permission."

 

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We hope you made it all the way through this issue's lengthy tome! The SIS

Contract is the best example we've seen of a legal document that needs

serious examination by the client. The client...that's you! We want to see

both SIS and artists come away with a fair set of terms.

 

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