Taco Bell, Not TBWA, Liable for $42 Mil. Chihuahua Judgment

(MoneyWatch)  An federal appeals court has ruled that Taco Bell and not its former agency, TBWA/Chiat/Day, is solely liable to pay a $42 million breach of contract judgment against it over the use of the "Yo quiero Taco Bell!" chihuahua.

The ruling dates back to a dispute over a campaign from the 1990s, but has relevance for all agencies today: Taco Bell parent Yum! Brands had argued in court that TBWA was responsible for the content of its ads and should pay the judgment. The court, however, ruled that Taco Bell was solely responsible because the company had brought the dog to TBWA, and not the other way around as is usually the case.

Here's the factual nut of the case, according to the LA Times:

The developers of a "psycho Chihuahua" cartoon had been in talks with Taco Bell advertising agents to adapt the character for TV spots when, the men claimed in their lawsuit, Taco Bell took the idea to another ad agency, TBWAChiatDay.

The ruling underscores just how phenonenally expensive it can be to "accidentally" use creative property that legally belongs to someone else. This issue has been magnified in recent years by the internet and the rise of Generation Y youngsters working in agencies. The latter have grown up thinking that creative property available for "free" on the web -- YouTube, Napster, Creative Commons, etc -- means that other people's work can be taken and modified for clients.

The result is that it can be harder than ever for agency IP lawyers to ascertain where, exactly, each image, word and concept came from before approving its use. The consequences of getting it wrong, as Taco Bell just found out, can be huge.

A detailed account of the ruling can be found here.