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On Principle: Standing up for your rights

16 Jun 2004 by Jason Fried

We recently won our biggest job of the year (money-wise). However, during the contract negotiations (in which they required us to use their contract), we ran into a snag regarding when ownership rights to the work would be transferred from us to them. They say that they own the rights to the work even before they pay for it and we say they have to pay for the work in full before they own it. Our view is that it’s like a car loan or a home mortgage — the bank still owns the title to the property until you’re all paid up. We think that’s fair and reasonable.

Their language read:

Except as provided below, all tangible and intangible material and work product delivered under the Statement of Work and any additional statements of work that become part of this Agreement (including any source code and object code) (collectively, the “Deliverables”) will become the property of Company… Consultant hereby grants Company, a royalty-free, irrevocable, fully paid up, worldwide, non-exclusive, sublicensable right and license to use, reproduce, publish and modify any Consultant Property contained in any Deliverable.

Our terms read:

Prior to payment of all amounts due under this Agreement, Developer shall solely and exclusively own any and all rights materials designed, developed, created, and/or completed by Developer for Client under this Agreement… Upon payment of all amounts due under this Agreement, Client solely and exclusively owns any and all deliverables developed by Developer for Client pursuant to this Agreement.

That was the sticking point. They said no. We said no. Their corporate legal team wouldn’t budge. Finally, after some hardball, they came back with this revision:

Rights to the work are not transferred until payment is received, except for amounts disputed in good faith.

That was basically the last straw for me. What does “except for amounts disputed in good faith” mean? And what’s so unreasonable about this clear and reasonable concept: You don’t own it until it’s all paid up. Period. And, if you really want to own it immediately, you can always pay the full amount up front.

So, even though this was a sizable amount of money, I respectfully turned it down. Here is a copy of the email I sent (names removed). Note that there are some additional details in this letter that were not discussed in the message above, but also played a part in turning down the work:

Given everything that’s transpired, the only language we can accept is “Rights are not transfered until payment is made in full.”
And, frankly, I’m starting to wonder if COMPANY is the type of company we want to do work for. We completely enjoyed working with you on the original redesign. Just loved it. But, the new corporate mentality — especially from legal — it has me questioning if this is a good fit for us.
We feel taken advantage of (we have to use your contract even though we’re doing the work, we have to abide by your payment terms even though we’re the ones submitting the invoices, we have to abide by your promotion restrictions even though you wouldn’t have found us originally if all our other clients also prevented us from using their name in our client list, etc).
We’ve always stood for fairness — and we demand this from our clients as well. It’s nothing personal, but I’m not feeling good about this and think we’re going to have to turn down this project at this time. It’s a big project to walk away from, but we have to stand up for what we believe in. I’m sorry.

I felt we had to take a stand. We had to do what was right — not what was easy (it would be easy to take the money and agree to the unreasonable terms). Our work should remain our work until a client pays for it. Period. If firms like us give in then terms like these will become an accepted part of the landscape. We shouldn’t allow ourselves to be pushed around and made to agree to unreasonable demands. And that’s why I said no.

92 comments so far (Post a Comment)

16 Jun 2004 | Darrel said...

You did the right thing.

16 Jun 2004 | greg said...

good for you jason! not easy, but right!

16 Jun 2004 | len said...

Damn dude. You are my hero! I suck at the business end of design... but seeing you do it, means I can do it. What is their grounds for thinking that they own the work before paying for it? Are they that big and important that they can demand such a thing.

Oh, since you won't work with them, would you pass my contact info on to them? 202 555 1212. Thanks! :)

16 Jun 2004 | Sean King said...

I'm sure this will turn into a chorus real quick here, but well done.

So often it seems integrity is a lost virtue anymore. Great to see someone stand up (and sack up) for what's right.

16 Jun 2004 | Garrett Dimon said...

Definitely the right thing to do. Especially considering all they have to do is make a payment.

The only way that something like that should be that important is if they didn't plan on paying.

16 Jun 2004 | Urbanchords said...

One thing I have learned recently is that; you can do a bad project for a good client, but you can never do a good project for a bad client. I think that you just got rid of a bad client. In my field, architecture, we normally find out these type of clients end up costing you more money in the long run. A room full of lawyers bickering about final payment and claims never come cheap. See also your pay scale post from last week.

16 Jun 2004 | stp said... can never do a good project for a bad client.

Truer works may have never been spoken. Er, typed.

Anyway, way to go Mr. Fried for fighting the good fight!

16 Jun 2004 | Brad Hurley said...

It's too bad that more companies and small design firms don't stand up for their rights this way: clients' legal departments come up with these awful terms because they figure they'll get away with it. And far too often they do.

I used to negotiate research contracts and grants for a big university, and some of my colleagues from smaller institutions told me they relied on us to take a firm stand because we could afford to walk away from a big contract, whereas they couldn't. But I think even the little guys have to stand up for what's right, otherwise everyone gets screwed.

16 Jun 2004 | CURLY said...

YES. You are absolutely correct- Great stand. The money you can always replace BUT principle is irreplaceable!

16 Jun 2004 | Rob said...

Their Loss, your Gain. You did the right thing.

16 Jun 2004 | Bob H. said...

I ditto the comments, you did the right thing. For once there is a great story of someone who didn't sell out.

16 Jun 2004 | pb said...

Hmmm...sounds like there's a middle ground here that's not being hit. Both agreements seem unbalanced.

16 Jun 2004 | Vaughn said...

I'm wondering how many designers in your place would go ahead and accept the contract.

Great job Jason!!

16 Jun 2004 | Jeff Croft said...

Major props. It's easy to know that turning the job down was the right thing to do, but to actually do it? That's not so easy.

Way to go, Jason. :)

16 Jun 2004 | ~bc said...

It's good that you stood up, because there are smaller places w/ less of a rep that wouldn't be able to turn that down most likely.

I agree wholeheartedly, why would a client insist on that language unless they planned on taking your work w/o paying for it?

Lastly, I appreciate the personal tones in your email, but in some cases I felt it a little whiney. Not that you asked, but hey, criticism is like gold, if done with the right intention. The "And, frankly, Im starting to wonder if COMPANY is the type of company we want to do work for." and the third paragraph sound as if you were taking your ball and going home. Did they do something to offend? Of course, its your email, I'm just saying I might have taken a little different angle.

16 Jun 2004 | Dave S. said...

And we all thank you for it.

16 Jun 2004 | Jonny Roader said...

Sounds like there may've been middle ground, but if you got a bad feeling about them then it's best you called time.

A question though: would you have accepted the client five years ago? Or is this a case of you having the clout and security to be in the position where you can turn big jobs down?

16 Jun 2004 | JF said...

A question though: would you have accepted the client five years ago? Or is this a case of you having the clout and security to be in the position where you can turn big jobs down?

I probably wouldn't have because I didn't know what I know now.

As far as security goes, there's no such thing -- we're a small firm and really can't afford to turn down these big projects, but I also can't compromise on such a fundamental issue as this. This goes to the root of what we do and what we're all about.

16 Jun 2004 | Ed F. said...

I totally agree with you, JF. It's hard to turn down the big projects, but if you don't feel secure, don't do it. AIGA would be proud of your pro-ethics stance, you should possibly think about contacting them about this, to give a case study on dealing with this kind of thing (names withheld, obviously). it really is a huge issue, especially with larger companies that have a ton of lawyers making unreasonable demands because they can.

16 Jun 2004 | martina said...

JF - just curious. Would you have been able to stand in front of the client and say the same thing? I ask only because I tend to shut down when challenged in the "real world".

16 Jun 2004 | Thomas Baekdal said...

Although I do agree with the point made - until you pay it is not yours - there is another red flag showing up. It is about this part: "including any source code and object code"

That is a very dangerous thing to have in a contract. To give an example. In Basecamp there is this nifty upload feature (where it uploads to your ftp server). Now imagine you also add this functionality to COMPANY's system - then when the rights are transferred you cannot use it in Basecamp any longer (you no longer own the rights to that code object).

Never, ever, give up the rights to the source code, code components, object code etc. The client my gain the unlimited rights to modify the source code - and they may also get the full rights to do whatever they like with the final product.

Compare this to the car industry. If BMW sells a car under such terms, BMW would have transferred all rights to you. They would in legal terms no longer be able to sell any cars, nor service the cars they already sold to other people. The buyer of this single car suddenly have all rights to car manufacturing at BMW. They would not even be able to develop other cars unless it did not include a single component from sold car.

16 Jun 2004 | Bryan said...

JF, you've done it again. It's tough to do the right thing (in work and in life), but when you do it it's so satisfying in the long term. It's important to keep your eye on the long term cause the short term is the easy decision.

17 Jun 2004 | sloan said...

They weren't saying they would have the sole right. Just basically a sublicense to use as they saw fit, so the whole source code thing doesn't make sense. If the wording when they came back with "Rights to the work are not transferred until payment is received, except for amounts disputed in good faith" disturbed you, you could have had that wrapped into a third party arbitration clause to save you the money of litigation and reduce the risk.

If the people involved were rubbing you the wrong way, and enough to make you walk away, I understand. But as companies become larger they have more to protect, so them starting off with that boiler-plate text shouldn't have been an insult. If the people involved were jerks I consider you lucky enough to be able to say no. Personally, I don't take legal crap personally, oftentimes you can work with them to make it "right" because the person you are dealing with usually doesn't control the legal anyway.

Your email made it sound more personal than professional. Just my perception though...

17 Jun 2004 | Joost Schuur said...

To play devil's advocate here, did the work involve heavy use of their IP? What if the motivation for the clause was that if you're going to work with their brand and properties, you shouldn't be able to claim ownership?

17 Jun 2004 | Scott M. said...

Good for you guys! It's tough to walk away from the big clients, but if the vibe is not there, and they're not willing to be flexible on what you consider a no-brainer, you've made the right decision and probably saved yourself some headache.

17 Jun 2004 | grumpy said...

The only problem is that there is some firm out there who WILL take the work on thier contract and their terms, and they will probably charge less, too.

It's unfortunate that not everyone has such resolve.

17 Jun 2004 | chrispian said...

Fantastic job! I hate turning down clients as well. I'm usually the first person to try to find a way to work with a client and have grown to regret it. When issues like this spring up, there are probably other hidden factors that will come to light while working with the client. It is never fun to have to turn down, or even fire a client, but often times it's best for both sides. You made a hard choice and I think you made the right one.

17 Jun 2004 | beto said...

I don't know if there's a book named like "The Art of Saying NO"... but your experience would fit the title perfectly. Over time, I have learned that, no matter how attractive or how badly you need the money, in the long run it is much better to know you did the right thing at the right time than having to drop your pants and your dignity just so you can say "We have (insert big name company here) as clients".

Sometimes the price to pay for that is too high and not really worth it. and if you think otherwise, you will most likely regret it later. Lessons from life.

17 Jun 2004 | Chris Moritz said...

Good call. I can understand the sympathy for paranoid lawyering in some of the other comments, but just reading your account sent shivers down my spine. It does seem that they're interested in legal wiggle room to not pay you.

Monday's Dilbert had a bit about small business guys and how big companies run all over them, knowing that it's likely that if the little guy isn't paid, he'll go out of business.

link to the comic

17 Jun 2004 | Natalie Buxton said...

I'll add a "me too" comment.

You certainly did the right thing - ethically, morally and for your own reputation and peace of mind.

A client who insists on such terms will probably shaft you for full payment.

For all my work, the client has had to sign my contract except once, where I had to sign theres. But that clause about "until fully paid" was in there, so I was happy.

Stick to your guns, because there is nothing worse than doing a shitload of work and not getting paid. Been there, done that - learned how to play hardball.

17 Jun 2004 | Sarah said...

You are a good man to stand up and do the right thing, and good men are hard to find. Good on you.

17 Jun 2004 | andrew said...

Having just started a business in the past year, these types of stories really hit home.

We just recently went through a similar situation of "firing the client" due to a dispute over project scope and payment. We all agreed that the potential for this project was huge and could have grown our business very quickly as a result. But it was a bad sign when all the potential was preceded by short-sighted individuals who wanted to quibble over relatively insignificant dollars.

Making the decision and the break was not easy. I'm sure your email took many drafts. Our situation unfortunately involved several painful phone calls with an individual we (still) consider a friend.

Our lawyer once told us that in a class she teaches, she reminds her students, "I don't know why you do what you do, but I'm here for the money." Being paid for services you perform very well is not something you should give or sign away. Period.

17 Jun 2004 | Drew said...

Wait, but you did get the job in the end?

Regardless, bravo!

17 Jun 2004 | benry said...

Good on ya Jason. I admire your stance and position. That's why we hired you.

17 Jun 2004 | Sharad said...

Appreciate your stance. Not easy to walk away from a large contract. But this public discussion of the client's unethical behaviour, even though their name is not disclosed, is going to make them and its legal deptt. very uncomfortable and unhappy.

Not a good begining for the project. Maybe, you should have posted this issue much after the completion of the contract, or somewhere else.

17 Jun 2004 | tlack said...

A few random comments..

Jason: I'm super impressed that you had the cojones to drop the client like that. That's something I've yearned to do dozens of times in my business but rarely am I able to. Too bad we couldn't see the look on the client's face when he read that email..

To those who say they would only want that terminology if they planned to not pay you: That's a pretty silly concept. Contracts are all about worst case scenarios. If everyone had reasonable expectations about people acting fairly, we wouldn't need contracts. They define the boundary case and what will occur at that time. "If your uptime isn't 99.99%, contract is void." etc. I would imagine the client was going to invest significant amounts of its internal resources and marketing dollars developing the site w/ 37S, and they wanted to be sure that last-minute quibbles over stock photography wouldn't cause six months of work to go down the drain (along with the associated PSD files :-D).

17 Jun 2004 | Anonymous Coward said...

I'm sorry, but this is Noise.

Would you give such praise to Brad Pitt if he refused to sleep with the most beautiful woman ever because she wouldn't brush her teeth? No. You'd call him an ass for not compromising. But Brad doesn't have a woman problem. He has the luxury to kick her to the curb, mock her, and plenty of other women will still knock on his door. The gesture becomes irrelevant.

But this isn't Brad's blog. This is Jason. And Jason's our cult hero. We the web nerds love him. We love that he stuck it to the man instead of toiling with their legal department. But it's the same difference, isn't it Jason?

If all of us (who need paychecks every 2 weeks and have a sole source of non-recurring revenue) were handed a $50,000 project, you bet we'd all would have been worth the risk on betting on faith. We would optimistically look to monthly incrimental payments, work within imperfect terms and make that money, because we, *important* WOULD EXPERIENCE A SIGNIFICANT CHANGE IN THE QUALITY IN OUR LIVES IF WE SAID NO. Just like Jason.

Oh wait.

That's the part that nobody is taking into account here. Jason does not need the money. I repeat. He is a very succesful interent consultant, 37 signals does well, they CAN say no and still be succesful. Yes, it would have been nice to get Jason a yatch, but Jason's not in business to save the world from unfair legal departments. He is a consultant for money, which makes it glaringly obvious that he has plenty at the moment to be able to turn this down.

Show me a hungry Jason the web designer do this and I'll eat my words. Otherwise, this is just an ego trip two steps out of a silver lining. And he fired up this blog, he must have sighed at what brilliant PR it would make.

You kind of smiled when you saw me only put $50k. Am I right? :)

C'mon Jason, post last year's gross earnings.

Shut me up.

17 Jun 2004 | mark said...

We've introduced strict mayment terms for smaller projects 50% in advance (non refundable), 40% when the site goes live (for whatever reason, even if its unfinished) and 10% after 2 months when all of the bugs should have been ironed out as theres always something we miss... this also means that if the client pressures/demands the site be launched incomplete, they have a deadline of 2 months in which to make sure theyre happy with it.

we dont publish until a cheque is in our hands.


17 Jun 2004 | Richard Rutter said...

Aside from the ownership before payment issue, this bit bugged me:

Consultant hereby grants Company, a royalty-free, irrevocable, fully paid up, worldwide, non-exclusive, SUBLICENSABLE right and license to use, reproduce, publish and modify any Consultant Property contained in any Deliverable.

To my mind this means they could take your design and sell it on to any other company without you getting a penny. Perhaps that was part of the project, but if not it could be damaging.

17 Jun 2004 | Joanna said...


I wanna have your baby!!!

17 Jun 2004 | Jonny Roader said...

"As far as security goes, there's no such thing -- we're a small firm and really can't afford to turn down these big projects, but I also can't compromise on such a fundamental issue as this."

If you *really* can't afford to turn these projects down then fair play to you. A gutsy decision.

17 Jun 2004 | Jonathan Snook said...

My comment may get missed way down here and amidst the wave of congrats. Firstly, you were standing by your principles and that is admirable.

But (heh, that crazy but), have you looked at it from their end? Imagine yourself a company contracting out some work with your "rights transferred upon payment clause"... say, some photography. The photographer says, it's $1000 for my work. You give the go ahead and a week later you get some nice photos. But then you get the bill..."Wait, it's $1500 now!". He says its for expenses... yeah, expenses are on top of his fee. Now you have an amount in dispute (in good faith?) and the project is due tomorrow! What do you do?

I'd probably have suggested a two-part change to the contract.

1. As you have it now, rights transferred upon payment, no if's, and's or but's.

2. The new part: all budgets, costs, and fees must be agreed upon before commencement of the project. (heck, this may already be in there, in which case, this whole comment was moot).

This way, there are no surprises at the end and everybody walks away happy.

17 Jun 2004 | Brian said...

Well done. My first freelance gig ever as a student in college I had to turn down. The guy, over a lunch meeting, made multiple insulting jokes about religion and race, so I chose to decline. Would have been my first nicely-compensated job (thus eliminating Ramen from my diet), but standards are standards.

I applaud you, for at 19 I didn't have the courage to tell my client *why* ...

17 Jun 2004 | Don Schenck said...

My comment here.

17 Jun 2004 | John S. Rhodes said...

Everyone is gushing. That's fine. Perhaps 37signals did the right thing. If nothing else, I like the fact that they have principles and that they stuck to their guns.

I've worked with small(er) firms. When possible, I choose small firms over large firms. Supporting the small(er) guy is important to me, especially if they do good work.

With that said, I have been on the other end of this, inside a large organization. It can be extremely difficult to work with small firms because they are paranoid. Often, this makes sense. The little companies need to be afraid of the Big Bad Wolf. (I have done the same thing with my own consulting.)

Yet there is something important to remember about this delicate dance. Neither side is really looking to "win" -- the idea is to cover your ass. You don't want to be left out in the cold, wet, with your pants down.

I'm missing the real ethical argument here. Sorry, but I don't see it the way that others see it in this respect. This isn't about ethics in my opinon, it is about standing up for yourself. So, I congratulate Jason and The Crew on sticking to their guns, but I have no real positive comment on any sort of "ethical" position they are taking. They are standing up to the BBW, and that is that.

Here is a great comment made by pb:

"Hmmm...sounds like there's a middle ground here that's not being hit. Both agreements seem unbalanced."

This is a completely reasonable reaction. When it comes to contracts, there is nearly always room for negotiation. I find it very hard to believe that there was no room for compromise. For example, why couldn't the BBW own some of the deliverables? As they pay, they could get some % of the deliverables. Perhaps certain design elements, the architecture, storyboards, and so forth, but maybe not the HTML and CSS files. That sort of thing.

Again, I've been on both sides of this dispute and I have done this kind of thing. And I've done it contractually. It is never easy to compromise, but hey, that is business. Not the win-win Holy Grail exactly, but very sane, very reasonable. I've seen it work.

Summary: 37signals did the right thing because they felt it was the right thing, and they did not compromise their principles. However, 37signals probably could have spent more time to find middle ground with their potential client. I've made it work, and I didn't sell my soul to make it happen.

17 Jun 2004 | JF said...

For example, why couldn't the BBW own some of the deliverables? As they pay, they could get some % of the deliverables.

The problem with this is that web design is a different animal. Once the initial creative and a few HTML/CSS templates have been delivered, the client has the bulk of the value. They could easily terminate, take what we've given them, hire someone to dupe the templates, make some changes, and then launch. I'm not suggesting they'd do this, but this has happened to us before and I didn't think it would happen then either.

We're not selling a partial solution, we're selling the whole thing.

For example, when you buy a car, you can't pay for half, keep the tires, engine, and windows and then return the rest. You're paying for the entire car. Yes, you pay for installments, but you aren't buying the car piece by piece, you're buying the entire car over time.

17 Jun 2004 | jkottke said...

"Hmmm...sounds like there's a middle ground here that's not being hit. Both agreements seem unbalanced."

I'm with John and pb on trying to see this from the potential client's perspective. IMO, you owning everything you've done before they pay you in full is just as bad as them owning everything you've done having paid you nothing. You used the analogy of a car loan or home mortgage...but in those cases, you do get something when you pay in your money. Not strict ownership, but if you want to sell your house, it's yours to sell and you get the profits from the sale (less what you still owe the bank). Which seems fair. Perhaps there could have been a way to arrange partial ownership for partial payment without either side getting burned.

That said, contracts are no substitute for trust. If you feel like you can't trust a company and their motives, no contract in the world is going to protect you from a potential bad ending. This goes for small companies with limited resources dealing with large companies or large companies trying to deal with small, potentially unstable companies.

17 Jun 2004 | Grant said...

Kottke, there's a difference between usage rights and ownership rights. I'm with 37s on the ownership rights issue. There's no way a client (or anyone, for that matter) can own what you've produced without paying for it. And, if this is a project-rate project (as I suspect it is), it's the project they are buying, not the incremental deliverables.

17 Jun 2004 | Carolynn said...

If a company won't let you put your name on a project....have you really done the project?

I'm not sure if this sort of maneuvering is old or new, but I've heard some even more gruesome stories from friends lately in the illustration business (one of my friends had a client who was basically trying to have ownership of my friends STYLE, thankfully my friend took the contract to a lawyer before signing it).

Thanks for sticking up for creative people everywhere.

17 Jun 2004 | TL said...


17 Jun 2004 | Darrel said...

"Shut me up."

You have obviously never dealt with legal departments like this.

17 Jun 2004 | KayTee said...

It's such a pleasure seeing someone do the right thing when it's so easy and convenient to do the wrong thing. Kudos Jason. -Kaytee.

17 Jun 2004 | John S. Rhodes said...

Jason said: "The problem with this is that web design is a different animal."

Interesting comment. I'm thinking of my usability consulting projects where I can provide deliverables along the way. For example, I've delivered raw data to clients, before my final analysis. In every case, they've paid me something upfront. So, on good faith, I feel it is fine to offer a deliverable, or partial deliverable, since they paid me something already. Quid pro quo.

With web design, perhaps life is different. Maybe it is all or nothing. But I don't see why limited rights, or partial deliverables, can't be offered.

Kottke said: "That said, contracts are no substitute for trust. If you feel like you can't trust a company and their motives, no contract in the world is going to protect you from a potential bad ending."

Agree 100% with this. Forget ethics. Forget contracts. If you don't trust who you are working with, everything else is moot.

Grant said: "Kottke, there's a difference between usage rights and ownership rights. I'm with 37s on the ownership rights issue. There's no way a client (or anyone, for that matter) can own what you've produced without paying for it."

Here's a different take on this, from a contract point of view. Is it possible to generate legal language such that the customer gets whatever they want, when they want BUT if they release you, and use what you've delivered (in whole or part), that you get paid in full? (This assumes a project contract, not time and materials.) That would allow them to review what you have done, and even own what you've done, but it would provide for the disaster where they take part of what you've done, drop you, go to another firm, and refuse to pay. In plain speak, they can't drop and run without paying you in full. Any legal eagles out there? Does this make sense?

17 Jun 2004 | praetorian said...

I wish the Democratic Party would've practiced this same display of integrity when promising Social Security would never be more than 1% of your paycheck, never raised, and always tax-deductible.

I wish the Democratic Party would've practiced this same display of integrity when designating bin Laden as the #1 threat to America, endlessly charging him with crimes, yet turning down 3 offers to hand him over.

I wish all Liberals would follow your example.

17 Jun 2004 | JF said...

Ugh... Did we have to bring politics into this? Please, let's keep it out of this one. Thanks.

17 Jun 2004 | AK said...

so... if you turned down this client... can you send them over our way? just kidding.

legal things are a pain in the ass. however we don't hide behind them. we accept them how they are and build relationships with the people, not the paper.

we know we can bend the rules. you just need to pick the battle between trusting the client as a person or trusting them as a company.

17 Jun 2004 | Cynic said...

Would this decision have been the same if you hadn't gotten a paycheck in 16 months?

If so, you are due the 40 kudos from your peers. Otherwise, you sound like a guy that likes "attaboys", "bravos", and "I wanna have your babys".

17 Jun 2004 | purplepeopledesign said...

Nice going. So the question is, why can't you reveal this company's name. Since you signed no actual contract with them and they will not only be a bad client for other designers, but will also give a bad name for all other companies looking to hire a designer. IOW, you'll be protecting designers from this company and other companies from designers that will only agree to overly safe contracts.

17 Jun 2004 | JF said...

Would this decision have been the same if you hadn't gotten a paycheck in 16 months?

Good question and I simply don't know, but what I can tell you is this: I've never had a client have such an issue with this before. And this wasn't the only major issue -- it's just one that I highlighted.

The other big issue I had was that they required us to use their contract. Don't you wish you could bring in your own contract when you went to buy something? Next time you buy a house or a car, or sign up for a credit card, or any service for that matter, try showing up with your own contract with your own terms and see what happens. Further, using their own contract is just an attempt to offload legal costs to their vendors.

Of course, if I needed to eat and if I didn't take this job we'd go out of business my decision might have been different. But being in the position to do the right thing and then not doing the right thing is not something I want heavy on my mind.

17 Jun 2004 | Darrel said...

John...I think we're talking of ownership rights...not deliverables.

17 Jun 2004 | pb said...

For any purchase over several thousand dollars, buyers absolutely get to stipulate agreement terms. They are the ones paying after all!!

17 Jun 2004 | Birdman said...

"For any purchase over several thousand dollars, buyers absolutely get to stipulate agreement terms..." [ pb]

Hmmm. When was the last time I paid more than a few thousand dollars for something and had the privilege of stipulating terms? Let's see... House? No, that's not it. Healthcare insurance? No, that's not it. Automobile? Nope. Mutual Fund? Not that, either. Office Lease? Uh, no. Hmmm...

17 Jun 2004 | Mark said...

...Don't you wish you could bring in your own contract when you went to buy something?...

...Hmmm. When was the last time I paid more than a few thousand dollars for something and had the privilege of stipulating terms? ...

Of course, ya'll are trying to take a B2B relationship and force it into a B2C box - these analogies you're presenting are strawmen.

Of course, even if your arguments were to work, it depends on the parties and the situation. I guarantee you that Bill Gates, Steve Jobs and any other heavy hitter multi-billionaire absolutely comes to the table with their own terms to any personal deal - espcially since the odds are good (especially in Gate's case) that the individual is the more powerful.

Same here. I would imagine it's safe to assume that this company was bigger and more powerful than 37S - hence, they bring their own deal to the table.

Right or wrong? Neither. It just works that way sometimes.

17 Jun 2004 | Mark said...

Not really meaning to double post...

To keep it in a business perspective, consider Walmart. Everything is the Walmart way, or no way.

17 Jun 2004 | scott said...

I'm disturbed by this whole conversation.

Having principles about the type of work you do and the way you conduct business are signs of a great company (read Built to Last by Jim Collins). However, I have a hard time sympathisizing with 37signals on this one because of *how* they chose to stand by their principles (not the fact that they have them).

I think there are some huge questions raised in this post that few comments have directly addressed:

1. Who is the victim here? -- reading the excerpts of the letter to the client makes it sound like 37signals did everything right and that the client did everything wrong. This is business; before the contract is signed, any party has the right to walk away. It's not personal ... which leads to my next question:

2. What's the advantage of all this preaching? -- Simply not accepting the work would have sent the most appropriate message. I don't see any value in writing a long, judgmental, emotionally-charged email that insultingly questions the client's integrity ... which leads to my next question:

3. How did this affect the people involved? -- okay fine, the legal department are jerks. However, if I were the "buyers" at the client (the people who wanted to hire 37signals), I would have been embarrassed by the preachy written lecture and would think twice about ever working with 37signals again -- even when i am at a different company with a better procurement process. Same goes for anyone else who might happen to have read it (like on this site, for example).

4. What was accomplished? -- The letter will not change the client; a frank, non-emotional, face-to-face conversation about the reasons for turning down the work would have had a greater impact in that regard. So what purpose did the letter serve? Did it help build relationships? no, quite the opposite. Did it show respect for the people involved? not really. Did it show professional objectivity? I don't think so. Did it damage the field? maybe.

Principles are great, but the principle of maintaining objectivity, respect, and professionalism even in difficult situations is just as important.

17 Jun 2004 | JF said...

1. I'm not going to comment on this because you have to be sitting at the table to fully understand the dynamic. I understand this is business, but we all have the option to decide how we like to do business.

2. Simply not accepting the work will never change anything. It's pretty common to complain silently and then expect things to get better, but if the other party doesn't know the reasons then they can't address them. You may disagree with how I did it, fine, but that's how I did it.

3. I have no problem with the people, which is why I've told my contact repeatedly that it's not personal. He knows that.

4. You'd be surprised at what standing up and saying "no and here's why" can accomplish.

17 Jun 2004 | pb said...

Birdman, you don't negotiate at all in those situations? Wow!

18 Jun 2004 | DaveMo said...

I think Jason's comments above summarize the situation just fine. I'm in particular agreement with #4.

I'm sure we all wonder how we'd have handled the situation. But after seeing some of the subtle and not so subtle language in his examples, I got a bad feeling too.

Obviously, we don't know the details of Jason's agreements with clients - he may have different agreements regarding "deliverables" and "product" etc., depending on the client, but that's not really the point here, I think.

It seems to me that a middle ground could have been met with this client, but what I think Jason sensed was a disturbing shift in the way this formally good client was doing business and that what should have been a relatively straight forward business transaction was being hijacked by a petty legal ping pong game. There should be NO ABIGUITY in any language that stipulates a successful project, otherwise it's bound for failure or at least bad feelings on one side or the other.

One of the best lessons I've learned in life is that, no matter what the game is YOU DON'T HAVE TO PLAY IT! I learned that lesson when I walked away from a well paying but abusive job 10 years ago and I haven't regretted it yet, even though it meant years of starting at the bottom again. I also came up with this riddle for the occasion.

Question: "What do you call someone who quit (insert company name here)?

Answer: "FREE!"

Anyway, obviously not the easiest thing to do, but the right thing to do in this situation.

Good luck Jason!

18 Jun 2004 | ek said...

Would this decision have been the same if you hadn't gotten a paycheck in 16 months?

I don't understand why this matters? Would it have been any less "ethical" a position to take if 37s had oodles of money in the bank? Are only "poor" people to be applauded for making decisions based on ethics instead of economics?

The bottom line is that the project was not taken because of a disagreement over the contractual terms, not because of financial concerns. I don't think the size of 37s' bank account has any bearing on this.

And pb, I don't recall Birdman writing that he doesn't negotiate, only that he's not able to walk in with his own contract in the situations he cited. You may be able to knock a few points off here and there by negotiating, but in none of those situations would you be able to impose your own contract on the other party.

18 Jun 2004 | cynic said...

The bottom line is that the project was not taken because of a disagreement over the contractual terms, not because of financial concerns. I don't think the size of 37s' bank account has any bearing on this.

An analogy might make it clearer... JF's stance is like a vegetarian refusing a big tasty hamburger while there is plenty of salad and tofu in the fridge. If he hasn't eaten in 10 days and the cupboards are bare, he would think twice about his vegetarian ways before turning it down.

18 Jun 2004 | Mindaugas said...

I can clearly see what was the fear of 37s not to transfer ownership of deliverables without payment, but what was the reasoning of that company to own deliverables prior payment? I think only after knowing that we can say if there was a way to save contract. Was that simply their company policy or something more? Wasnt it possible to divide project process into phases so that company pays in parts and gets ownership of deliverables from each phase?

Regarding fact that they offered their contract to sign. I agree that in B2B contract is an outcome of negotiation. Couldnt you revise their contract and include clauses defending your position? Were they absolutely against it? If so you did the right thing to turn down the contract. Negotiation is good as much as both parts win, there shouldnt be a looser.

18 Jun 2004 | Ben said...

Good on you for taking a stance Jason.

My small company recently signed a deal with a very large company for our service which produced a 44 page legal document from them that we had to agree to.

Unlike ownership and payment issues their lawyers had put in the contract that BigCo at any stage could cancel the contract and we would have to repay all money paid so far. This was even if they had used the service for x months without problem.

Fortunately the contact person at BigCo thought this was as silly as we did and we negotiated out the minor issues and got a great deal for both of us.

I think you have to be able to find the middle ground but if the relationship with the people you will be dealing with on a day to day basis isn't there..then you have to think twice.

If only a nice chunking option existed for your work.

18 Jun 2004 | lisa said...


I applaud you for your integrity.

I wonder, why did you post this on your company blog?

18 Jun 2004 | Jeroen Visser said...

Good entry, Jason, and an interesting discussion to match. I believe there are two dynamics at work here:

1) Design is a creative profession and thus involves copyrights, intellectual property rights etc.
2) Design is a problem solving profession and thus includes clients that expect a working solution and usually also full freedom to use the solution the way they feel.

These two should be in balance (and are in balance, fortunately, in most cases). Sometimes, however, a client uses his power (you as a designer needing this turnover) to gain an inappropriate deal for as little cost as possible. On the other hand: there may very well be designers that allow their clients too little leeway while implementing or altering their design to fit particular situations or needs.

As I'm not familiar with the exact situation discussed here, nor with US legislation considering intellectual property in these cases, I can't tell who's at right or at fault here. But I can see that this company overplayed their cards, thus losing the expertise of 37signals, and 37signals lost a potential fine project and the turnover. In the end, I think 37signals will gain though. Turning down projects really is part of doing business, and while it is 100% common for companies to brief several possible design agencies (thus turning down all minus one of them), it seems as if it still is extraordinary when an agency decides not to work with a particular client because the atmosphere for success is lost.

18 Jun 2004 | Birdman said...

Food for thought taken from writings of David Baker, Recourses, Inc.:

"Good management is more about making distinguishing decisions in an environment not conducive to it.

"Unless we recognize our tendency to insulate ourselves from the down and dirty side of managing, we will waste precious energy on systems that are doomed to fail from the start.

"Being fair and being even are different things. Make distinguishing decisions and you'll be as close as you should be to the practice of management."

18 Jun 2004 | Darrel said...

"Fortunately the contact person at BigCo thought this was as silly as we did and we negotiated out the minor issues and got a great deal for both of us."

It should be noted that most of the BigCo contracts are written from the extreme 'let's get away with every thing we can think of' attitude of their legal team. There is nothing wrong about renegotiating these...I have a hunch most lawyers would EXPECT you to.

18 Jun 2004 | One of several Steves said...

It's interesting to read all the automatic praise of this decision, as well as all the automatic criticism.

The fact is, unless we were involved in the situtation, there's no way of knowing whether the right thing was done.

The only real lesson we can all take away here, I think, is that if you're uncomfortable with the relationship and project, it's probably better to walk away from the uncomfortable situation. For you own satisfcation, but also because it's difficult to do good work when you're uncomfortable with the very relationship between you and client. And doing subpar work is going to be far more damaging to your long-term reputation than walking away from a potentially lucrative contract.

18 Jun 2004 | jason said...

this is really awesome. Congratulations, 37Signals employees, for standing up for the smaller, knowledge-oriented business, and defending the value of your product.

18 Jun 2004 | Ken said...

Ever here of the golden rule: He who has the gold makes the rules. Deal with it. 37 Signals and the potential client had a legitimate disagreement. Through negotiation, it seems like a reasonable result was attained. Live with it.

19 Jun 2004 | Seth Thomas Rasmussen said...

Right fucking on.


20 Jun 2004 | Jeff said...

May I ask who they are?

I'll take that job.

20 Jun 2004 | anonymous said...

A company's business practices should never be dictated by a legal department or outside counsel. Eventually, as demonstrated in this case, the company will disconnect with customers, suppliers and associates.

Eventually, while not immediate, the company will die.

20 Jun 2004 | Steve said...

Hi! I came across this from, and, after reading it, I can only say: Rock The F On!!!! You did the right thing! :-D

21 Jun 2004 | Michael Fasani said...

I also came across this from, well played mate. You have nothing to loose by turning this down! Means you have more time on your hands to work with reasonable people!

21 Jun 2004 | Phunky said...

Just sounds dodgy too me, that the client wants 100% ownership over the work before they have paid for it, meaning they could say we will pay you 1,000,000 for the job then pay 10% or what ever you have as you base payment and then not bother with the rest....

Not that they would get away from the full payment, but they could make it an arse to get the full payment...

No doubt you didnt need the hassle of what this project has become and its good to see the payment factor didnt sway your judgement.

End of the day its the other company that missed out on you great work...

Must try that when buying sommat...

"Sure ill have that plasma scrren, but were gonna go by my contract..."

Ill pay if and when i can be arsed


21 Jun 2004 | Heath said...

My significant other is a lawyer for one of the big evil corporate law firms and I passed this one by her.

It is true that the contract is the binding document here, so of course either party can specify who owns the property rights and when (the contract is always the binding document the only exception is if the contract specifies something that is illegal), also, the company is still bound to pay you no matter what. They can't, as someone suggested, stop halfway through and pay you less than agreed. It does feel a little sticky, but I don't think it is that unreasonable. It can be difficult for a company to have you be involved in a project and then if something happened be able to pull out, pay some fines, and take your work and start your own company using the work you started for them.

That, of course, is unlikely, but possible. I definitely think it is good to stand up for your convictions, but make sure you have the best legal representation that you can possible afford, that is the one thing I have learned from having a lawyer in the house.

22 Jun 2004 | Pam said...

Heath writes: They can't, as someone suggested, stop halfway through and pay you less than agreed.

Well, they can, I'm afraid, Heath. And say to you with their big legal guns standing behind them.. "So sue us." Not everyone has the money or the stomach for a legal fight.

I am new at this business of Web design and self-employment (tho not new in the world--this is a second career for me). I have already learned some hard lessons, thanks to a former family friend who runs a talent agency and stiffed me, big time.

If someone is a bad fit for me as a client, then I'm not helping them or me by agreeing to work with them, and the time I spend working for them, I could be out finding clients I do like and who won't abuse me. But the temptation is always there to ignore that little warning voice and take the job anyway because I do so love the work.

Thanks for sharing this, Jason.

28 Jun 2004 | Dave Child said...

Completely OT, but your RDF link in your HTML is broken.

Back On T - I think you made the right choice. It's tough to turn down work, but when the client makes life that difficult at the negotiation stage, over something that should have been part of their contract to begin with, it doesn't bode well for later!

28 Jun 2004 | Dave Child said...

Ooops. You now have a <link> element where it should not be. This is why I dislike movable type.

The broken link to your RDF file is:

<link rel="alternate" type="application/rss+xml" title="RSS" href="../index.rdf" />

30 Jun 2004 | Jonathan said...

I think all this bravado about "how we said no" is just an excuse for not being clever in a business negotiation.

Contracts only really matter when or if there is a dispute, and - more subtly - a contract does not HAVE to be enforced if the signatories don't want to enforce it. Youd be surprised how often factors outside the contract come into play when it comes to business relationships. Also, in Europe, and I think in the US, there is the concept of signing up to unfair terms: that is, if you sign a contract that the court finds is unfair to you, then they may release you from those terms.

Of course, agreeing to assign copyright to somebody may not be deemed as unfair, but if the whole deal comes down to when the client gets their copyright, you may as well ask yourself "are they likely not to pay us?" If you think they are, then change strategy: ask for stricter payment terms, modify the definition of the license, or the IP itself, go for a retainer, a split, profit-share... anything to take the sting out of them not paying you for your IP.


30 Jun 2004 | Danielle said...

Cutting through this ocean of comments on both sides, may I just say that, in the end, if the situation doesn't feel right, it's wisest to walk away. People may think you're an idiot, or at the very least, insane, but what people think really doesn't matter that much. I'm just stepping into my second career and gearing up towards starting my own design firm, and a lot of family and friends thought I was foolish to walk away from my original career path. I even dropped out of grad school to pursue this. Point is, the people that really cared, understood that this was the best choice for me, and that what I walked away from was an increasingly uncomfortable situation.

In the end, regardless of the details on both sides, I think you did the right thing, for YOU and your company, which is what really matters most.

04 Jul 2004 | Karl said...

I would have to agree with the many people who said "if it didnt feel right, leave" I was put in a similiar situation after working for this company after about 6 months. The CEO, President, and Treasure had secretly been buying stock behind the Founders back (while he was busting his butt travelling cross country to sale the company's products) and took majority control... They preceeded to make horrible business decisions (none of these guys aside from the founder had the intelligence, or the knowledge to run an Internet related business) which drove the Founder into walking out.

We were all in that "what if" position described so many times above... We all had bills to pay, and in the founder's case, 2 kids and 1 on the way... Aside from the recently hired "boss", which was the cause of the whole problem here, all 8 of us on the design team walked out with the founder, even after being offered more money.

Needless to say... that company lost an awesome design team. I had been dealing with all of their customers since before they even had their studio set up... Their customers loved how things were handled. Our products at the time were oustanding, we even worked off the clock to meet the deadlines if we had to. We covered every aspect of the design side of the requirements completely, and for a total group of strangers when we started, worked flawlessly together. We loved our job, but as JF said... some people just arent worth working for.

It would appear now that this company is out of business... I have to admit, that I am happy to see it go... although I'll always miss the almost $2000 they cheated me out of (which they also tried to bribe me with into coming back....) by changing my pay without telling me. (yah its illegal, but the BBB let them get away with it...) -- and no, considering the circumstances, I didn't feel that bad at all about having to go stock shelves and bag groceries for a few months until a new job panned out...

Anyways, enough ranting, hopefully this will put understandable perstective on things... I believe it was said in the comments earlier, that you do not have to have money to do the right thing. I would amend that to read: "You do not have to have money to do the right thing, simply the drive to stand up for what you believe in"

The after effects of my decision, with the employment rate where I'm from... I ended up in the Air Force, and I'm glad that I walked out with the founder, overall I would have to say that our actions had significant effects on the company, and I for one am proud to stand up for what I believe as being right, regardless of the effect it has on my quality of living, and I will gladly applaud others that are capable of doing the same.

Sorry for the long post, but after reading all the comments here, I felt a similiar situation from a truly not "rich" person would maybe help bring the whole point of not taking the job/leaving a job based on principal/beliefs rather than financial standings, into a clearer perspective.

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