Start-up IP dispute in Canadian Corp
I'm currently in an intellectual property dispute over software I developed in a new start-up (Canadian corp). It was written under the false pretense that I would have 25% ownership of the company, but in its current state, I have 0%. The owner later changed the offer to 5% prior to the software's release.
Since I have no ownership, I was a contractor (no contracts signed) working in the office with them, though I was also freelancing in the office as well so I am in no way an employee. All the payments I received were from revenue I directly generated as a contractor. If I was a standard contractor for hire, I worked for less than a quarter of my typical rate since I'd own 25%.
While the software was written for the company (no legal agreements), the compensation structure was changed significantly over what was initially verbally agreed upon (both contract rate + ownership). Most of the software development was done after hours, and was also done entirely on my own computer. My payments were via check, and the product name was part of the memo (along with other projects we'd worked on).
Myself and another guy from the company have parted ways based on these and similar ethical reasons, which leaves the primary dispute of the product / IP ownership.
From what I typically see, unless IP is explicitly transferred, it is retained by the creator. I understand some of the above circumstances make this very gray to me.
In summary: I was paid to be part of the team, but not to directly build the software. The product was originally my idea, and was creatively developed by me and the partner I am leaving with. The rest of the team had no creative input on the software or the business model we built around it. No contracts were ever signed for the project and I was paid as a contractor.
Who owns the IP?
(FYI - I will be seeing a lawyer soon as well).
Software Incorporation Canada Intellectual Property
3 Answers
I'm not a lawyer, and my advice relates to US laws. Canadian laws may differ.
In the US there is something in the law that states that if you continue to work with someone after the original terms of a contract have been modified (or have been broken), you are in essence agreeing to those new terms.
It's unclear from your question how the change from 25% ownership to 5% ownership came about. Did you continue to work on this project after they stated they were going to reduce your ownership to 5%? If so, how much? If they can show an email message from them to you stating this change, and can also show that you worked on the project after you read the message, you may be in trouble.
Of course things are rarely black and white when it comes to these issues. You should definitely ask your lawyer about this aspect of the law.
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It was all verbal: no emails were exchanged about the actual ownership. Things definitely started to fall apart when we were told about the ownership changes though, so we did not agree to it. Development was halted for the most part at this point, as I wanted it resolved before we launched. Things by no means continued as normally. Thanks for the new view on it. – Adrian Schneider 14 years ago
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Sounds like more good news for you. Best of luck to you! I hope you get your fair share. And please let us know how it ends up. – Zuly Gonzalez 14 years ago
I'd probably just offer to get bought out of the 5% by paying you the difference between your normal rate and what you got paid. If not, then bill him for that and perhaps take him to small claims court for some small subset of the payments.
The other alternative is a lot of lawyering and bickering. Best just to move on and be rid of it.
At the very least you need to figure out what you want in the end. Do you want to be 25% owner in a company with this guy? Do you want to spend years and your real money chasing some 20% equity or money?
Just my opinion.
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Thanks for the response. Offering a buyout was an option, but they have no money, so I'm leaning towards playing hardball on this one. We offered them 5% revenue and no ownership, and some other options if they were willing to contribute to the project. They counter offered with ridiculous numbers (100% ownership), so we're likely to play hardball. Trust is no longer there, and I would not be comfortable giving them any ownership at all. Without our help, the product will not launch. Appreciate the response / ideas! – Adrian Schneider 14 years ago
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You should get a good understanding of what "Playing hardball" means. It will suck up your time, money and energy. That is lost productivity on starting a new venture... Opportunity cost is a serious issue. – Tim J 14 years ago
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By the way - what is it that you want? Revenge? Money? Ownership? Not allowing them to use your code? An apology? Figure that out first. – Tim J 14 years ago
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Playing hardball is saying 'No', and sticking by our original offers. They will have to take legal action to go any further, at the risk of his other full time job and at the risk of being charged by the government for making business decisions as a bankrupt corporation owner. We want ownership. They won't be able to use our code if they did win. It's not even complete, and will take 5-10 thousand to finish it off, which is money they do not have. Giving them 5% is very reasonable considering they will not have to put any more work into it. – Adrian Schneider 14 years ago
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I don't understand - I thought YOU were getting 5%, not them. Go ahead, litigate. hey have the code - I doubt you can get an attorney to take this without payment up front. You want to take over the company? If you wrote the code then why don't you just take that code and start a NEW company, then IF they ever become viable you can sue then. I think you have to explain the situation again. Why is it bad to make decisions for a bankrupt company, and what bearing does that have on an IP dispute? You were a contractor and did not get what you claim was agreed on, now you want the WHOLE company? – Tim J 14 years ago
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What I meant by understanding "hardball" was that (at least in this country) it would mean a lot of money, a lot of time and a lot of frustration - all wasted IMO. Why not just move on and get on with something else? – Tim J 14 years ago
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Sorry let me clarify... we were offered 25% then 5% of the company we started with them. They do not currently have any of the code. We will be starting a business with the IP as our first product (will be building many more, regardless). We are offering them 5% revenue from the product to walk away. The bankruptcy issue: if you are personally bankrupt, you cannot run a corporation. However, you can own one. The guy in question started making calls near the end which is illegal. – Adrian Schneider 14 years ago
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I see. It sounds like you are in the driver's seat. I hope it works out. I am sure we'd all love to hear the outcome – Tim J 14 years ago
Unfortunately one of the very hard lessons in life to learn...This just stinks..
But only you can answer these questions, One..on who's servers does the code exist on? Two, do you have ANY paperwork to verify your claim to a percentage of product? If not you are in the classic he said, she said situation and worse he can demonstrate payment to you for your work.
I understand this doesn't make you feel better but ask yourself this, How will the judge, mediator or anyone know what you or the other party says is truth? Why should your words be any truer than the other parties? No paperwork, No leverage.
I learned a similar lesson also early in life on a commission check of 14k... Honesty doesn't always pay...contracts and deliverable protect.
I'm sorry about hearing about this abuse. Trust, they will get there just desserts soon enough. We wish you well.
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Sure, it's a lesson learned, but I can still make the best of it. This will be entirely he said / she said, which to me would swing it in my favor since I'm the one who wrote it all. Thanks for the support! – Adrian Schneider 14 years ago
