Et tu, Brute? Remember that old public service announcement – “It’s 10 pm. Parents, do you know where your children are?” I hadn’t thought of it in years until a few days ago when a call from a client reminded me of it.

A little background. I met the owner of a local web design and advertising agency about three years ago. She had recently struck out on her own and had a small, but formidable, group of creative employees and the right mix of clients. She needed the right tools to do business, so I spent time with her discussing the nature of the company’s services and products, the company’s cash flow and other assets, its client base, and related issues. With a good understanding of her company’s profile and where she wanted to take it, I drafted a standard services agreement for use with her company’s clients. Having seen other small, young companies bite the dust because of loss leader and front-loaded arrangements, my client was wary of giving away too much and was resolute that her company would not succumb to the too-eager-to-please syndrome. The services agreement we drafted was enforceable, fair and business savvy.

If only she had paid as much attention to her employees as she had to the services agreement, but I’m getting ahead of myself.

The next few years brought the usual ups and downs of a young company, but overall, they did quite well and developed a great reputation for snazzy, robust work. They won bigger clients than a company that size is typically able to bring in – and managed to keep up with the work. As the client base grew, so did the number of employees, and the owner began to relinquish some control over clients and projects to allow her employees to grow and to develop essential client contact and project leadership skills. Smart business owner. She was now a CEO.

But along the way – both by her failure to stay involved and her employees’ failure to keep her in the loop – the CEO allowed her employees too much independence and she lost critical awareness of exactly what her employees were doing. Until the letter.

On an ordinary Thursday in an ordinary week, the CEO received a rather unordinary piece of mail. She had been served with a complaint naming her company as a defendant in connection with an ad campaign her company – she then learned – had created and asserting that her company and its client – that she never knew about – had violated the plaintiff’s trademark rights and was, therefore, liable for unfair competition. She understood none of this. But the plaintiff’s demand for damages – a million dollars, plus attorneys’ fees and court costs – this, she understood plenty.

After an emergency company-wide meeting, the CEO learned that an employee had brought in a new client last year – a pizza restaurant called Tiny Titus with locations in Baltimore and Annapolis – with plans to expand into DC and Northern Virginia. The restaurant chain was run by the employee’s old college friend. The business arrangement was casual – a few emails about hourly rates and third party expenses and not a lot more. When Tiny Titus came to my client, it had a location in Baltimore County near Towson University and Loyola College. It was getting by, but had failed to capture the student consumers it had planned on. Tiny Titus had a logo that its owners already liked – a goofy cartoon version of the Roman emperor eating pizza while sitting in a chariot – but it needed a slogan, increased media exposure, and an overall campaign strategy to synthesize its brand image into a recognizable source of good, quick and cheap pizza with all the usual sides. My client’s employee did good work and it paid big dividends to Tiny Titus. Within about 16 months, student business was a steady, reliable revenue stream and Tiny Titus had opened up a new location in Annapolis, and was looking to grow even more.

That’s when a national pizza chain with the same target demographic and brand image sat up and took note. Just like Tiny Titus, the name and logo of this national pizza chain also made light of a well known, historic Roman figure. It walked and talked like willful trademark infringement, which can result in an award of treble damages plus attorneys’ fees. The plaintiff had sent a demand letter to Tiny Titus outlining the issues and demanding that Tiny Titus cease and desist from doing business with its current logo and business name – the chief ways in which the plaintiff asserted that Tiny Titus was infringing its trademark rights. But apparently Tiny Titus didn’t lend anybody its ears, and just ignored the letter. Not one to be ignored, the national chain filed a mega-watt lawsuit pointing the finger at everyone plausibly tied to the violation of its intellectual property. This, of course, included my client – the smart agency that came up with the terrific advertising and brand imaging strategy.

After the CEO got the details, I got the call. “Calm down,” I responded, “your services agreement outlines in clear language that Tiny Titus has a duty to indemnify you for this type of claim because they brought the logo and name to you. You didn’t create either. This lawsuit doesn’t target the slogan you developed and marketing pizza to college students is hardly a protectable business model. I’ll pick up the phone and call Tiny Titus’ lawyer and we’ll get this straightened out.”

That’s when she told me that her employee – her trusted, independent, creative employee – had done the work without a net. There was no indemnification agreement, because there was no executed services agreement. Sure, Tiny Titus had paid its bills on time and had never stiffed them for expenses, but the employee had never so much as submitted the services agreement for the client’s consideration. This was a major mistake – and will prove to be an expensive one.

Because there is no indemnification agreement, my client is now forced to fend for itself. That means major litigation expenses and the risk of ultimate liability for contributory trademark infringement – or, instead, maybe a settlement payment. And, of course, now my client is compelled to point the finger at Tiny Titus as the wrongdoer. Not exactly good PR for an agency built on growing its clients’ businesses.

Your employees are your ambassadors and your agents, and they have the power to bind your business through their daily business conduct. So, how can you save yourself from being thrown to the lions? Simple stuff. Hold weekly staff meetings or require your employees to send you an email every Friday afternoon giving you an update on project and customer status. It doesn’t have to be formal to be informative, and it could be the difference between allowing your employees room to grow and losing sight of the details that could land you in the middle of a lawsuit, or worse. The right amount of attention can prevent your eager, well-meaning employees from morphing into your surprise assassins.

Labels: advertising, Employment

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