Kraft Shocks Shops With 'Outrageous' Review Edict

Its Plan: Own Ideas, Leave Agencies on Legal Hook

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NEW YORK ( -- Kraft's ad review for the Oscar Mayer, Kraft Singles, Ritz, Triscuit and Grey Poupon brands has given some of the participating agencies a nasty bout of indigestion. The unpalatable lump: A demand that the shops give up ownership of ideas presented in the review -- but accept legal liability should the marketer end up using those ideas at some later date.
Carol Irgang, senior-VP integrated marketing communications at Kraft
Carol Irgang, senior-VP integrated marketing communications at Kraft

Although it's become increasingly common for marketers to include the unpopular stipulation that agencies surrender rights to anything pitched in a review, the notion that a losing shop might be sued for an idea they presented was just too much -- even for agency executives who've found themselves knuckling under increasingly draconian review requirements from marketers rather than risk losing out on an important account.

It appears even Kraft may have belatedly come to that realization. This week, as Ad Age was reporting on its review agreements, the marketer gave the impression it was backing down. "We're in the process of refining our agency-pitch requirements," said Kraft spokeswoman Renee Zahery, who declined to offer specifics. "Kraft values the relationships we have within the advertising community and wants to be fair. ... We realized these practices needed to be adjusted to align more closely with industry standards."

The country's largest food marketer, which spends more than $1 billion on media annually, didn't give details on exactly how or why it was changing its review agreements. But it seems likely it came under pressure from the agencies that couldn't stomach its terms. Their trade association, the American Association of Advertising Agencies, said it hadn't put pressure on Kraft but had been offering advice to its members.

Not the first time
Tom Finneran, 4A's exec VP-management services, described the idea of agencies retaining legal liability for the work they pitched as "totally outrageous." He added: "We are talking to members about the best practices ... and we recommend that agencies should preserve ownership of ideas and work product. ... On the issue of indemnification, we recommend that agencies seek counsel from their attorneys."

It's not the first and won't be the last time agencies have been asked to fork over all their ideas in a review. Back in 2005, Hilton Hotels caused a stink when it demanded agencies vying for its $40 million creative account sign over rights to ideas pitched even if they didn't win the business and offered no compensation.

In the Kraft situation, the food marketer is paying contenders "about 25 grand," according to one agency executive. Ms. Zahery would not comment. Agencies' beef with Kraft, however, was over the liability clause, not over whether they're paid a stipend for ideas or expenses -- although most agree that $25,000 is just a token, not even enough to pay the bill for the research required on a big-ticket brand pitch.

Unfinished products
Agencies say work developed for a competitive review is intended as speculative, not finished product, making it even more important that they're not held liable for it if they're not executing it. "It's supposed to demonstrate a process -- how an agency works. It's something that can be pursued further in the event that a client and agency work together," Mr. Finneran said. In a pitch, agencies have neither time nor money to fully vet creative by ascertaining rights for photos or whatever else is necessary. "Due diligence hasn't been done," Mr. Finneran said.

Rick Kurnit, partner, Frankfurt, Kurnit, Klein & Selz, who regularly advises agencies on contracts with marketers, said: "In today's world, where there are 300 consumer touch points, there's no way to know how the materials themselves may be repurposed and used beyond what the scope of the initial project was." Agencies have little appetite for having to assume legal liability for work that's not finished advertising and could be used in any number of formats.

Another issue, agencies say, is that agreeing to transfer ownership of ideas and strategy presented in a pitch exposes them to unnecessary risk. How can an agency that's sold an idea to a marketer be certain that the idea will never be published by anyone but the buyer? "Ideas aren't protected by copyright," Mr. Kurnit said. "Only the execution is protected. It's almost silly for a client to expect that it is an enforceable agreement."

The good news
Clients come up with such arrangements, however, out of process and habit. These requests are "the result of contracts and arrangements from an earlier era that have no place in today's world," said Mr. Kurnit. In fact, the old-fashioned legal approach contained in many nondisclosure agreements and new-business requests for proposals "flies in the face of current industry dialogue from both marketers and agencies," said Ron Urbach, attorney at Davis & Gilbert. "There's greater acceptance of the idea that the business needs to fundamentally change in terms of rewarding agencies for the value they create." Some new-business executives blame overzealous attorneys looking to protect marketers from potential litigation, while others point to procurement executives who want to shift the burden of possible legal costs to someone else.

The good news, said Candice Kersh, also a lawyer at Frankfurt Kurnit Klein & Selz who regularly negotiates client-agency contracts, "is that many advertisers really are willing to be reasonable. Once you understand their concerns, they're open to different solutions." Added Kraft's Ms. Zahery: "If agencies have a concern, we ask that they bring it to our attention immediately."

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Contributing: Stephanie Thompson
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