VIC Intellectual Property Law and Business Partners

[EliotNess]

This is a real legal question, but I've changed the names so that its anonymous:
Mr X happily owns and runs Acme Corporation. He sees the demand for an app for catching Road Runners and asks Mr Y to build it with the agreement that they will both own 50% of the app (partnership agreement). When it comes to finalising the nitty gritty Mr X suggests that Acme Corporation should own the IP to make the agreement easier (the IP agreement therefore states that Acme Corp owns 100% of the RoadRunnerCatcher app, rather than 50/50). Mr Y would still be entitled to 50% of revenue and 50% of sale amount (if product is sold).

1. Is it even possible under intellectual property law to split the IP between a sole trader and a company or does a company (or trust) have to own 100% ?

2. If question 1 above is possible, is it silly for Mr Y to allow Acme to have 100% of the IP even though Mr Y is still entitled to 50% of revenue and sale price?

3. What disadvantages are there of giving away the IP to a business partner?

Thank you for your time and help.

 

[AnnaLJ]

Hi EliotNess

This is quite a complex situation that you may need to seek formal legal advice for. But I'll try to give you my thoughts on some of the issues you have raised.

Firstly, when you refer to 'IP', are you only referring to technical IP rights in the App itself (ie, source code), or have you also considered ownership of other elements of IP such as:

• The name of app (which may or may not be a registered trademark) and any associated slogans;
• Ownership of the 'idea' or concept; and
• Ownership of other IP generated by or for the app, such as copy for the website or images/logos.

This is important for you to determine as, for example, you may end up finding there is more value in the actual name and brand you build behind the name rather than the source code itself.

Secondly, in relation to your questions specifically:

1. Is it even possible to split the IP between a sole trader and a company or does a company (or trust) have to own 100% ?​

Yes, this is possible. It all comes down to the agreement in place between you and your business partner.

2. If question 1 above is possible, is it silly for Mr Y to allow Acme to have 100% of the IP even though Mr Y is still entitled to 50% of revenue and sale price?​

The answer to this all comes down to the specifics of the arrangement between the two of you, the contribution each of you will make to the business, and what you both want out of it. It could expose you if the IP is 100% owned by Acme, as the IP might end up being where all the value in the business is. Therefore, if Acme decides to sell the IP then you may be left with a business that is worthless by virtue of it no longer having access to the IP.

A more common arrangement, might be for you and Mr X/Acme to set up a new company together in which you are 50/50 shareholders. That company would then own the IP and run the app business. Each of you would then still get 50% of revenue and 50% of sale price if the company were sold. I think this would be a much less risky way to do things.

3. What disadvantages are there of giving away the IP to a business partner?
​

As above, unless you have a very strict and detailed partnership agreement in place it could leave you very exposed to have one of the business's greatest assets owned solely by the other partner.

Again, I do recommend you seek formal legal advice from your lawyer and talk through in detail what you each want from the arrangement. There are many complex considerations involved in setting up a business such as this.

I hope I have helped in some way!

Anna

 

[DennisD]

Hi there


The earlier comments from AnnaLJ are very useful to read over a few times. Please excuse me in advance if the response below is too long or if it has misunderstood some aspects of your situation!


1. You both agreed that you (Mr Y I'm assuming) would build an app which he (Mr X I'm assuming) would bring to market. You would both own 50% of the app. Your 50% was based on your labour in building the app. This was the deal, albeit in early stages and high level with details to flesh out later.


2. He now says, let's document the deal with him (or his company) owning 100% and you owning 0% of the IP. This was not the deal. You have now put in your labour, and he is now saying let's document the deal in a way that would have the effect that he has more and you have less, than as was agreed at the outset.


3. His justification for documenting the deal in this way, whereby he gets more and you less than as was agreed, seems to be that drafting the deal is more convenient and less hassle this way.


You are best placed to consider how to respond. One possibility which you may like to consider is making your own suggestion in response. It will be interesting to see how he responds if your suggestion, as if backflipping from his suggestion, happens to mean that you would have more and he would have less, than as was agreed at the outset.


For example, say if you owned 100% of the IP, and (possibly exclusively) licensed it to his company for $1 for a fixed period of time, suppose one year. (This way if he failed to bring it to market successfully you could then find someone else who may be able to do so. Also, this would have the effect of more accurately reflecting that it was you, rather than he or his company, who developed the app.) If in response to your suggestion he says ''no no, it's too complicated'' or it's too much ''nitty gritty'' work, you might like to ask him why does he think this. Though you guys may not be super familiar with certain IP concepts and ways of documenting deals, for other people (enter lawyers) this often can be much more straightforward because they regularly get paid to do it, on perhaps a daily or weekly basis depending on their line of work.

Finally and most importantly, please follow up on AnnaLJ's comment, ''I do recommend you seek formal legal advice from your lawyer''!