Two years ago, advertising agencies and their clients had barely heard of patent trolls, let alone worry who should pay the costs associated with patent assertion cases. But the sudden surge in patent troll cases is now beginning to strain the contractual relationship between agency and advertiser, leading the 4A's on Monday to release guidance to its agency members on how the problem should be handled in contracts with their clients.
Clearly neither party wants to be on the hook when the trolls appear from under the proverbial bridge and charge that a digital marketing campaign violates patents over the use of QR code, a pull-down menu on a website or a promotion in a text message.
While most marketers indemnify their agencies for patent claims, recently an increasing number of big companies (Coca-Cola, for example) are leveraging their clout and scale and asking their agencies to pick up the tab. As a result, a lot of contracts addressing the problem remain unsigned.
The 4A's guidance recommends agencies not indemnify clients for patent claims. Agency responsibility for patent liability, if any, should be proportional, with an equitable sharing of costs. The 4A's also recommends that agencies document the features and functions of pre-existing marketing campaigns prior to taking on new campaigns.
"Hard lines aren't going to serve either side well," Tom Finneran, evp of management services at the 4A's, said of the new guidance.
Though it's hard to nail down the financial cost, Finneran estimates the cost to marketing services in settlements and legal costs at around $10 million, with an even bigger impact on marketers. "It's an enormous economic drain," he said.
With marketing transforming into digital and mobile iterations, the problem of dealing with frivolous patents is only going to get worse. There are some 250,000 patents in a smartphone alone. "It's almost impossible to search for patents. And unless we come up with a way to deal with this—or until it's fixed in Washington—it just becomes a bigger challenge," Finneran said.
What's worse, digital agencies are worried that the cloud of uncertainty created by patent trolls will stifle digital innovation. "In the absence of a balanced approach [to patent troll litigation], marketers have incentivized agencies to bring safe ideas to the table," Bryan Wiener, 4A's digital board chair and the CEO of 360i, said earlier this month at the ANA financial management conference in Phoenix. "Safe often means unremarkable. Unremarkable doesn't often translate into breakthrough business results."