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By default, who owns the copyright to products in an LLC? And trademarks?
Anonymous2 views4 answers
Say you form a business with two equal members producing a software product. One member produces 90% of the code for the product. Assuming no explicit agreements are made with regard to IP ownership, does each member own the copyright to their respective creations made after the LLC is formed? Or does the LLC own the copyright? Similarly for any trademarks generated after formation. Does the originator own it, or the LLC?
If the originator is the owner, not the LLC, one can envision a scenario where one of the members decides he's contributing far more than he's receiving and creates a competing LLC using the code and/or trademarks he produced for the original venture, and insists the original LLC stop using his code / trademarks. Under default law would he have any substantial liability?
I see at least three issues on your question that need to be addressed by an attorney. 1. assignment of IP rights, 2. non-competition, 3. dissolution.
I understand the LLC does not have an operating agreement in force or if it does have one, such O/A does not specify that much.
Reason why I suggest you consult an attorney.
You need to consult with an attorney as not enough facts are know for someone to give you the answers to all your questions. Regarding, the copyright question, the general rule is joint creators are co-owners of the copyright. As co-owners they can each exploit the copyright, but owe the other an accounting for 1/2 the profits.
For the most part, North Carolina's business law controls. I'm not licensed in North Carolina. The following is how the issue would be evaluated under California law.
1. When two or more people join efforts with the goal of making money in the marketplace they create, by operation of law, a "general partnership." No documents need be drafted or signed. Once created, the partnership has an existence separate and distinct from the two partners. [If you're doing your own research, a statutory general partnership is one kind of an "unincorporated association"].
2. Because the two of you joined forces to create and sell a computer program you created a general partnership. The rule is that property created by the partners in furtherance of the partnership belongs to the partnership -- not the partners. It is irrelevant that the property was created mostly by one or the other partners. The copyright in the computer program that the two partners created is intangible property and, I think, passed automatically "by operation of law" to the partnership [under state business law and federal copyright law].
2. During the LLC formation process, efforts had to made by the partners in the general partnership to decide how to capitalize that corporation -- which is done by putting money in its bank account AND deciding what other property [real property (land), personal property (computers, desks, etc.) and intangible property (existing contracts, leases, loans, copyrights, patents, trademarks) the partners wanted transferred to the corporation and therefore converted into corporate assets. Absent an express agreement otherwise, I think that ALL the general partnership assets automatically became assets of the newly-formed corporation [including the copyright in the computer program]. Once the corporation was created, the two "general partners" became "members" of the corporation [assuming, of course, that both partners were actually identified in the formation documents as members of the LLC].
3. All property, including trademarks, created for the benefit of the corporation by its members belong to the corporation. Again, it is irrelevant that one of them is doing more work than the other.
4. The person who is allegedly doing more work than the other has NO right to create a competing company that takes wholesale, or even takes advantage of, the corporate assets of the original company. That is unlawful under many different types of business torts.
You need to speak with a business attorney licensed to practice in North Carolina [or wherever you and the other person formed your partnership]. And take home this: If you want to play a team sport then it's the TEAM, not any individual player, who wins or losses. So it is with business. Once you form a partnership with other people in order to make money, you, individually, are not who wins or loses. It's the group as a whole. If you want all the credit [and the risk and liability] then go into business alone.
The LLC owns the intellectual property rights (copyrights, trademarks, others) created by the members in furtherance of its operations. One member cannot unilaterally form a competing business and use the IP rights---this would violate many legal doctrines, including the duty of loyalty and to avoid self-dealing. If the members of a partnership or LLC cannot agree on how to carry on the affairs of the business, then the business must be dissolved and the assets divided among the partners or shareholders. Just because one member believes he his contributing more to the business than the others--this does not permit such member to simply seize corporate assets (such as software code) and use it in a separate enterprise. To the contrary, such behavior by this member can land him in hot water in court. You got in bed with a business partner/co-owner, and now you want a divorce. It is perfectly fine for you to decide that the business relationship is not working, but the "divorce" needs to happen in accordance with law. That means there must be an orderly dissolution of the business and a distribution of its assets. If you want to acquire the IP rights belonging to this LLC, you probably will have to pay their fair value. If you cannot negotiate a solution with your former business partner, then a court will have to decide how to deal with this situation. But unilateral, self-help is not an option here.
