The vast majority of contracts that I review involve intellectual property rights transactions. A common scenario will be a visual artist licensing rights in an image to be used on a product or an author licensing the publishing and related rights to their work to a book publisher.
Sometimes it's obvious when you need to get a lawyer involved. If you've got a high value commercial situation with an important work at stake, you'd be foolish not to spend the money on having a good lawyer assess the contract and advocate for you.
But what if the value of the contract isn't very high? Suppose a company wants you to license your work to them for a flat fee of $1,000, or suppose you're offered royalties but only expect to make a few hundred dollars from it? How do you approach deciding whether or not to have a lawyer look at a lower value contract?
Here are some things to consider:
Lawyers - what they do, how much they cost
A lawyer's hourly rate is generally going to fall between $200 and $500 an hour. Ideally you want a lawyer who is familiar with your area of business and has negotiated similar transactions so they're not dealing with a learning curve on how the business works or what the legal issues are.
Even if you find a lawyer who's familiar with the business and the applicable legal issues, she or he will still need to read through the entire proposed contract and consider a number of important things, for instance, are there any just outright bad terms in this contract, things they'd advise their client to treat as deal breakers? Is the money fair? Is the scope of the rights grant fair? Then, assuming those basic items are acceptable, how does this contract treat what happens when things go wrong? How does the artist get out of the contract if it turns out the licensing relationship isn't good?
Depending on the length and complexity of the contract, just reading through all the text and figuring out the above factors can easily take an hour or more.
Then the lawyer might want to consider, are there provisions left out of this contract that, if they were added, might make the licensing relationship run more smoothly? Are there tweaks to the proposed terms that could make the contract more favorable to the artist? The lawyer will need to think these things through and will likely have to draft new text, delete or modify existing text. This will of course take time.
Many lawyers work this way: They'll create a copy of the agreement in Microsoft Word and turn on "track changes." This will show any additions and deletions to the original text. It also allows for the insertion of comments that run along the side of the document on screen. This is called a "redline draft" or just "redline." As the lawyer reads the draft contract they'll add, delete, and comment, all of which gets captured in the redline. That initial redline draft gets reviewed by the client and there may be a phone call or further email discussion about certain points. Once the lawyer and client are on the same page about the proposed changes, the redline (without the lawyer's comments to the artist) gets shared with the proposed contract partner.
The proposed contract partner now reviews the redline and may accept, reject, or revise the changes, and may add new changes. Frequently the changes will need to be considered and discussed by the lawyer and client.
Eventually (in most cases) the two sides reach a final, acceptable form of agreement and the contract is signed.
But you can see how this process, even for a pretty simple contract, could take at least a few (1-3) hours and more likely several (3-6) hours. For a complicated, high value contract with a lot of back and forth and contested terms, 20 or more hours of back and forth is not uncommon.
For you to engage a lawyer to review and comment on a low value contract may cost you more than the contract is going to pay you.
What to do?
You have options.
Check for the worst only
One strategy for keeping costs down on a contract review is to focus only on making sure there's nothing in the contract that is super unfair or potentially harmful. I somewhat playfully call this "reviewing for Claymores" (a Claymore is a type of landmine—something you’ll take great pains to avoid!).
In a flat fee situation, a “Claymore” might be a complete transfer of all rights. In a royalty situation, a “Claymore” might be an agreement with no way to get out of it, such as an automatic renewal clause in favor of the licensee without any way for the artist to stop the automatic renewal.
If you ask your lawyer to look for just the really bad things, such as I've outlined above, you'd likely keep the review time down, lowering the cost and leaving more value to you, but also giving you the peace of mind you've checked for the worst.
Pay for a full review anyway
In some cases it might make sense to pay for a full review, even if it means you won't make much on the deal or even might have to pay the lawyer more than the contract's worth to you. You might, for instance, want to consider working closely with a lawyer—asking questions and really getting the matter explained to you—for the purpose of learning the issues and how to spot them yourself. In this case you'd be using the low value contract as a kind of teaching tool with the thought that you may be able to handle the next contract on your own.
It might also make sense to do a full review where the opportunity to work with this particular licensee could be really good for your brand, and so you want to let them use the work despite the low payment amount, but the work in question is important to you and you want to be sure that you retain the power to license and otherwise use it with others.
Having a lawyer assess the terms in a contract can give you a sense of whether the deal you’re looking at is fair and may help you avoid sticky situations down the road. A lawyer can also help you to better understand the types of terms you’ll find in contracts in your area of the art-business world. I hope this post will help you decide whether managing risk and gaining contract knowledge is worth the cost to you.
Also keep in mind that most lawyers—myself included—will offer a complimentary consultation to new clients. You can take advantage of this service to tell that lawyer what kind of contract you have for review, what your concerns are, what you think the potential value of the contract is, and let him/her know what you’re hoping to accomplish by hiring a lawyer.