Co-founder holds source code hostage - big legal fight over copyright ownership
hoviblog.blogspot.com
hoviblog.blogspot.com
The word for someone who performs a core company role in exchange for nothing but equity is "cofounder".
The word for someone who is paid to do work but who is responsible for all their own taxes is "contractor".
It freaks me out that the Appeals court decided that these factors weren't "dispositive" of the engineer's relationship with the company, because (pp) "that's how startups work". The hell it is. If you want people to work for you, you get an employment contract together. If they're employees, you pay them, and you do W2 withholding.
In essence, the court went out of its way to try to do equity in what it viewed as a case of an opportunistic founder who tried unfairly to stick it to his co-founders. It is at best a mercy decision and an aberrant one at that (a legal outcome that turns basically on the idea that startups are "different" rests on pretty weak legal reasoning and is likely to remain a one-fer decision).
Founders are often are ignorant about who owns IP as it is created in these sorts of loose, early stages. Very important to get this right (see a piece I wrote on this issue here: http://grellas.com/faq_business_startup_015a.html).
At the same time, the case has almost no precedential value even apart from its poor reasoning. A narrow class of cases come before the federal courts that deal with straight state law issues, and they are decided in federal court only because there is a diversity of citizenship between the parties (i.e., the parties are citizens of different states). When a federal court decides such cases, it is forced to interpret state law and its decisions are regarded as minimally persuasive (because the state courts are their own best interpreters of state law). Thus, even if it were well-reasoned, it would scarcely carry much weight for future decisions in Idaho. And, since Idaho law is all that is involved, it would carry no weight at all for cases arising elsewhere.
Surely in the vast majority of cases it's what people agreed was the arrangement that matters. I know tax considerations complicate this.
This case seems like basically every other contractor/employee status dispute, except turned on its head.
Normally, the company has tried to reclassify people who are morally employees as "contractors" to avoid the benefits and terms obligations that come with full-time employees. And no, despite what the "agreement" between the parties may have been, you can't simply call someone whose work obligations are structured identically to employees a "contractor"; companies routinely get dinged for trying to do this.
The engineer in question was married to the founder's sister, and she died. Obviously there was a lot of personal relationship intertwined into the business relationship. In addition, there's a traumatic event in the lives of both the founder and the engineer. This probably meant there was no real contract, thus judges could swing in favor of either one of them. Your comment makes it seem like this is a typical business vs. the contractor case, which it isn't.
This is again again opposite of a typical employee/contractor status dispute. Same issues, but the company wants things playing out in the "employee" direction so they can claim IP.
http://www.irs.gov/businesses/small/article/0,,id=99921,00.h...
As an example, the phrase Does the company control or have the right to control what the worker does and how the worker does his or her job? seems a bit open to interpretation. Lets say you are a contractor working on a BFE Java or .net application. The project has its source control rules, its status reporting rules, its code convention rules, and all are likely under the control of an employee of the company in question. Sounds like the company has the right to control in this very common case.
So I argue that the rules may be extensive, but they are not very clear.