What is the law covering the intellectual property rights of software developed during internship/employment without signed contract/agreement?
I am a software engineer who "invented", and developed alone an integrated ERP software solution over the past 2 years. I got the idea and coded much of the software as intern at small wholesale retailer (company A) with which I had a verbal agreement that I could keep the IP rights to the code and the company would have the "shop rights" to use "a copy" of the software without restrictions.
Recently things started to take a down turn in the company A as the company grew fairly large and new head management was formed, also new partners were brought in. The original owners distanced themselves from the business, and the new group indicated that they want to claim the IP rights to my software, offering me a contract that would split the IP ownership into 50% co-ownership, completely disregarding the initial verbal agreements.
As of now there was no single written job description and agreement/contract/policy that I signed with the company A, I signed only I-9 and W-4 forms. I now have an opportunity to leave the company A and form a new business with 2 partners (Company B), obviously using the software as the primary tool. There would be no direct conflict of interest as the company A sells furniture.
My core question is: "am I better off just leaving with the software without anything signed, or should I fight the contract and resolve the issue with lawyers? (FL, US)" Detailed questions:
- Given the situation, where no signed legal agreement is present, I created the software partially as an intern and no-contract employee, and "the invention" is not in direct conflict of interest with the company A, and I always used my personal computer/servers to code/host the files on.. What is the applicable law governing the copyright and intellectual properties of the software in such case? If nothing is signed and I leave the company A tomorrow, who by default owns the IP/copyright to the code? I am concerned only with the US law, and local state law in south Florida (District 11)
- I am familiar with the "shop rights", I don't have any problem leaving a copy of the code in the company for them to use/enhance. What worries me, Can the company A make any legal claims to the software/code/IP and potential derived profits/interests after I leave and form a company B?
- Can applying for a patent/registering the software at http://www.copyright.gov in my name prevent any legal disputes in the future? Can I uset it as evidence for legal defense? Could adding a note specifying the company A as exclusive license holder clarify the arrangements?
- If I leave and the company A sues me, what evidence would they use against me? On what basis would the sue since their business is in completely different industry than software (wholesale goods). Every single source file was created/stored on my personal computer with proper documentation including a copyright notice with my credentials (name/email/addres/phone). It's also worth noting that I develop significant part of the software prior to my involvement with the company A as student.
- If I am forced to sign a contract and the company A doesn't honor the verbal agreement, making claims towards the ownership, what can I do settle the matter legally? I like to avoid legal process altogether as my budget for court battles is extremely limited at the moment.
Few points for clarification:
- I want to clarify that there was never hidden intent on my part, I was very transparent with the company A from the beginning, both parties agreed on the arrangements several times during the 2 years
- The software was not made specifically for the company A, even though they use it for their operations. The software was designed to be as generic as possible so it can be used by other business in virtually any products/services industry, the company A was just a guinea pig as they were the first to use it, they agreed to this before the software was made
- The company was not looking for the software solution when they approached me, I basically brought my old code in, enhanced it and created my job there
- There was no management/guidance that would affect my work, I was "my own boss" with no other persons in the company involved in software in any way. There is no know-how of the company A in the software
- No specific procedure/method/secret that would be considered confidential is embed in the software, the company A owns their run-time data and has access to it (databases)
Sincerely,
PT
Software Contract Employees Copyright Intellectual Property
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Nothing you can read here will be any help to you. You need to talk to a decent lawyer in your state. – Littleadv 12 years ago
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you need to talk to an attorney who knows about this. And you need to talk to the employer. You need to talk with them eventually, so what is stopping you from bringing it up now? – Tim J 12 years ago
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Thank you for your answers. The attorney will be the next step, I just wanted to be prepared. – P T 12 years ago
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To TimJ: As I indicated in my post, the situation in the company has changed for worse dramatically, I want to avoid talking to the employer until I know the law and its implications – P T 12 years ago
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Welcome PT. Your post is way too long to read. Please edit it. Otherwise you are unlikely to get someone willing to read it and answer it. (I didn't read it.) – Zuly Gonzalez 12 years ago
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Thank you Zuly Gonzalez, I took your advice and made the post shorter. I appreciate the advice, I am completely new to this. – P T 12 years ago
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WAIT! Before you proceed - can you confirm that you are/were a F1 student and right now on an employment visa (or STEM OPT extension)? The answer to this can change everything. In any case, I second @littleadv's advice. This guy has helped me personally though a lot and knows what he's doing. – F1 Student In Us 12 years ago
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To @f1StudentInUS: Yes, I was an F1 student on CPT for 3 months, and than one year of OPT without STEM extension (even though I qualified for it). I changed my status to H1-B in May of this year. Could this help or hurt my case? – P T 12 years ago
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@PT this only means that there's no question about you being an employee. You cannot claim anything else because your immigration status was based on that fact. – Littleadv 12 years ago
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PT, @littleadv: Furthermore, if your H1B is based on off company A, you will have to leave the country if they terminate your employment. You also cannot hold ownership stake in company B. You do hold the rights to the software, without doubt, but your immigration status is in the way. I am in a similar position right now but was able to work around it. Get in touch with me for more details but talk with a immigration lawyer specializing in deportation (don't panic about this suggestion! it's only for the worst!) – F1 Student In Us 12 years ago
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@f1StudentInUS I know the limitations of the H1-B well, I am very careful. Fortunately one of my "partners" would endorse my visa in his well established company that has been around for 40+ years if things go bad, H1-B transfer is rather simple. It is not true that I cannot legally own a share or whole of a company B in the US - I did my homework there. Regardless of the immi status, you can own an LLC or c/s class corp as long you are not salary drawing officer. it is only required that you are a resident for tax purposes - different residency than immi, tax paying H1-B holder always is – P T 12 years ago
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@littleadv I agree, it is now clear to me that there is no room for debate about the employment. On the other hand there is nothing in writing to prove that I was hired specifically to create the software. Perhaps I could argue that it wasn't withing the scope of the established employment? The practical training (OPT) was approved by my university for webmaster position with the scope of enhancing their e-commerce opens source system - not ERP software development. – P T 12 years ago
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@littleadv I just wanted to thank you for your time and effort to help me understand my situation. – P T 12 years ago
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@f1StudentInUS I wanted to thank you as well, I appreciate your valuable input and help. It is tough for people like us as we have to fight for everything, a word of advice from someone in the same boat is extremely valuable to me – P T 12 years ago
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@PT get a tax adviser. You have a C- on your homework. I suggest not to be a member of LLC or a more than 2% holder of S-Corp, it may be a potential issue with the immigration later. – Littleadv 12 years ago
2 Answers
I will keep this post short - but rest assured - you own the software plain and simple. Ask your lawyer to confirm that.
This is a completely legal matter and you need to reach out to a workplace rights lawyer in Florida preferably with exposure to IP litigation in court - ask for references.
Forget about what you have read so far in books and on the internet about rights defaulting to the employer: these assume some situations that does not apply.
You have enough to display & stand in court: I do not want to elucidate - the lawyer will do that for you.
Also, focus on what littleadv told you: you do have a few written agreements about your employment!
That can go against you.
Consider your employer's document you had to submit to be approved for the OPT. It specifies clearly about a webmaster position "with the scope of enhancing their e-commerce opens source system".
If the prosecution gets a good lawyer with an understanding of software, they can yank out the frontend to the ERP software you developed (the backend, and thankfully the "real deal" should be safe though).
Show him this thread and ask him if it would like to take it down in case some facts do not align with your final defense. Be assured - there exists a verbal but legal contract and if either of the original partners stand by you, you are good and you can not only win but recover all your litigation fee based on how your lawyer sets the agreement.
I would recommend you ask the partner who is willing to endorse your visa in his well established company (company C) to go ahead before you begin litigation.
You indeed can legally own shares of company B but without drawing a salary how do you intend to live? (Hence my comment)
Yes, you can be an employee of company C while working on company B but I am pretty sure you will have to give up majority stake in company B to the person from company C who are helping you out.
Is that what you want? You don't need to give up majority stake in company B at all if you time this right.
Be careful of having tunnel vision and focusing only on this case - look at how your decisions will affect your life for years to come!
For example - payslips are all important in everyday personal finance here in the U.S. (Loans, credit cards, ..) and necessary for you to continue your status.
Focus on getting a settlement before going to the courts.
Lean towards closed arbitration: ensure this does not go on public record.
The point is to reduce your exposure to the public as starting your business based off litigation might not be a very good idea.
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Contact me - I cannot get too specific in this post as it's likely to be pulled down. Always remember that the original owners waived their ownership rights to the software and that this the crux of all the discussion. – F1 Student In Us 12 years ago
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This is a great response. – Chris Gerken 12 years ago
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@f1StudentInUS Thank you for this. As of now there is no open escalated dispute, I have some time to respond to proposed contract (the 50/50). I will see an IP tech attorney next week, hopefully I will have some conclusive answers then. The next step would be to talk sense with the new group and explain to them the mechanics of IP ownership and exclusive licensing in software - it is likely they don't fully understand the concept, and feel vulnerable without the control of the IP, which they don't need to maintain complete control of their licensed copy. – P T 12 years ago
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@f1StudentInUS As for the situation with company B and C, we have a detailed plan that was cleared with an immigration and tax attorneys, the only thing holding us back is this issue. The company C would sponsor my H1-B, the DOL certification was already approved. My employment focus would be to work on the software within the company C, the software would be then licensed to company B and sold to the public as SaaS. I wouldn't draw any salary/dividends from company B until it has enough capital to show to the immi to endorse my status directly either under H1-B, E2 or potentially EB2 GC. ... – P T 12 years ago
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@f1StudentInUS I would draw prevailing wage through payroll from company C, covered by "licensing fees" charged to company B, combined with collected dividends. All licensing would be covered with legal contract waiving all entities of conflict of interest. It is not pretty, and is fairly complicated, but according to tax/immi specialists it is perfectly legal, and won't jeopardize my status. – P T 12 years ago
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@f1StudentInUS the only thing the entire process is hung up on, is the IP issue with company A, as the sole interest in all business arrangements is my software. I need to leave company A as there is almost nothing left for me to do, the new corpy environment there is terrible, and I have an opportunity start the business that I initially envisioned (the only reason why I stayed with company A, and paid for it with ridiculously low salary). Their change in attitude was unexpected, I just have to figure out how to deal with it. – P T 12 years ago
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@f1StudentInUS FYI here is an article describing common questions about starting a company in the US for visa holders: [link](http://www.greencardbase.com/page.asp?id=223) – P T 12 years ago
I also strongly advise that you contact a competent workplace rights lawyer in the state where the business is headquartered.
IANAL, but I've been in a similar situation and as I was also paid for the work I did, I'm sure they can easily make the argument that you produced the system as a work-for-hire irrespective of any documentation or lack thereof.
Sadly when there is ambiguity like this on which to hang a lawsuit, the law doesn't matter very much because the outcome of any action is strongly biased by the economic disparity between the plaintiff company and you.
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Thank you for your response, I agree that I need to seek legal advice from a qualified attorney. I was just hoping that there was a "golden" standard of how the IP rights were recognized/enforced for software engineering in cases like this. I did tons of research online, it's now clear to me that there is no such standard, at least in the US. In EU and Canada it is straight forward as the creator is always the IP right holder unless specified otherwise in legal contract. I don't understand why it is so complicated here. – P T 12 years ago
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@PT its not complicated at all. I'm not sure you're right about EU and Canada as well, but in the US, and many other places, when you're employee - you're an agent of your employer. I do not believe that it is different in Canada or EU. – Littleadv 12 years ago
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@littleadv Personally I think the common sense would be that the law required legal agreements between an employer and employee, regardless of the nature of employment. Without such agreement all creative work/inventions should be by default credited to their creators - otherwise there would be too much room for illegitimate disputes from either party, much like my situation. As much as I know in EU it works this way with the exception of the UK and Netherlands. I was under the impression Canada was more pro-employee as well, but I won't argue it is the case :) – P T 12 years ago
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@littleadv Here is a paper describing different legal systems governing the IP rights within EU and briefly the US: [link](http://www.juridicum.su.se/user/sawo/Publikationer/Employee%20IPR_Kap05.pdf) – P T 12 years ago
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@PT it answers your question pretty clearly. Don't know why you even bothered asking here. Remember, "Common Sense" is not a legal argument. Agreement doesn't have to be written. Litigation is done by professionals. Canada is likely to be common-law, similarly to the UK and the US (remember, Canada and the US are ex-UK colonies). – Littleadv 12 years ago
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@littleadv: The rights to the software clearly belong to him and from his original post (that he edited and you might have missed) it is evident he has enough to display & stand in court. There was a verbal contract and the lack of a written one clearly has him in favor + the fact that the new one asks for his permission to share 50% of revenue. However, if either the original owners do not back the original agreement, or he did not get a W2 or his H1B is based off Company A, he's in a difficult situation, but nothing a good lawyer cannot solve. – F1 Student In Us 12 years ago
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@f1StudentInUS I seriously doubt it will stand in court, and I seriously doubt he actually has that in writing. Most likely he misunderstood something (or at least, that's what the employer will claim, and the OP being a foreigner, it has a very good chance of being accepted). – Littleadv 12 years ago
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@littleadv, f1StudentInUS: I don't have anything in writing, but neither does the company. I am 100% positive that I didn't misunderstand/misinterpret the verbal agreement, one now ex-employee in hi-managerial position could confirm it as he was involved in the process. Would getting a written statement from this ex-manager testifying that he was there and the agreement as presented is valid serve as good evidence? – P T 12 years ago
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@littleadv: If we take out of the equation the verbal agreement, couldn't I deny that I was hired to make the software in the first place? There was absolutely nothing in writing specifying the scope of my employment related to software dev (as it is one of the requirements for the work-for-hire), the only document on record was the webmaster position description for the internship. I used for coding my personal computer and software tools licensed to me, this is easy to prove. I also worked on this thing at home off hours and weekends, my family and friends could confirm that. – P T 12 years ago
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@PT you could deny whatever, but the point is that by default you're employee's agent and everything you get paid to do - you do for the employee. There's no transfer of rights because the rights don't belong to you to begin with, regardless of what you put in the header-file text. IANAL, but that's my read of the thing. – Littleadv 12 years ago
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@littleadv: Your understanding is correct based on the assumption that he was hired for that specific job and there was no agreement to the contrary. Remember that the original owners waived their ownership rights to the software and that this the crux of all the discussion. – F1 Student In Us 12 years ago
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@f1StudentInUS yeah... That's what PT said. You know what value words have. When an exceptional agreement is verbal only and the only one admitting to it is the party to benefit from it - you can imagine yourself how low the chances for it to be sustained are. Lesson learned: what's not in writing - doesn't exist. I'd suggest the OP to move on. – Littleadv 12 years ago
