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My friend and I recently started our own service company. Since we have no technical background, we found a development guy to join our team. We ended up filing for an LLC two months afterwards (we started the project in college, so we held off formalizing until we graduated). Now we have a verbal agreement that the company is split 46,46, and 8 (developer) and we have put that in operating agreement, which are finalizing. The issue is, the developer started coding prior to us LLC'ing. Now for liability purposes, we want him to assign his IP to the company, but he has a hesitation. He said the coding framework that he used for our software is a custom framework that he uses for all his development. If were to assign his IP to us, would that mean his custom framework belongs to us or just the end product? If it's the former, then how can we accommodate his concerns?

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The developer is doing all the work and gets only 8% yet you want him to assign all his IP to you? Wow. I would walk away if I were him... One developer and 2 "business guys" who don't produce seems like a hard way to make a profit. – TimJ♦ Jul 21 '11 at 20:02
Hey, I totally see your point but, that is not the case. For more context, our developer is still a college student. Right now it does seem like he's doing a lot of work, but that is just because its summer break for him, not to mention that my partner and I run around day in day out to handle everything else. The developer understood that what he was creating for us was not some sort of specific algorithm or trade secret. He also knows once he goes back to school, the burden of work is on our back even more so. – Mo K. Jul 21 '11 at 21:30
Unrelated, so I'm commenting here: if you and your friend (the non techs) are planning on raising capital, it's going to be really hard to do so when all your product relies on ONE guy and HIS framework. He leaves, you're busted. Have a backup plan. Disclaimer: I'm a technical guy and a founder, and I don't force options on my team because of that - if I leave, the business must go on. It's about the customer, not what technology you're more familiar with. – tomeduarte Jul 21 '11 at 21:34
With every comment it seems more like you don't respect the developer's work as much as you should. "Right now it does seem like he's doing a lot of work, but that is just because its summer break for him" sounds like an excuse. To avoid a flame war you should explain the importance of the software in relation to the whole service. – Chris... S... Jul 22 '11 at 10:17

3 Answers

up vote 7 down vote

If I were him I would not assign it either.

One thing he can do is grant a non-transferable license that allows you/your company to use the framework but you can't modify, sell or re-assign that license or the framework to any other entity.

He should probably get compensation for that as well. For two reasons:

  1. it is only fair
  2. if it ever comes up again you can show that he was compensated (beyond just equity) and that you/your company has rights to it as he received compensation.
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This sounds like a sensible solution. Again, we aren't looking to take his framework or tools. We just want to ensure that the final service/product, and all associated services belong to the company. That way we don't have a legal loose end. – Mo K. Jul 21 '11 at 21:37
up vote 1 down vote

If he is identifying a framework that he uses to build all of his projects, then I'd segment out what the diff is between the framework and the customizations as IP. I'd also make sure that the framework could be used continuing on.

Another alternative would be to have him migrate his changes to a general framework like CakePHP as an example. Depends on how important the framework is to the IP.

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up vote 3 down vote

Every well written IP attribution will have a section called "List of prior inventions" where the developer can list his own IP that is not going to be transfered to the company. That's enough to address his concerns.

Other than that, I agree with what all the other people said. The developer is really not making a good deal for himself.

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I like these ideas of separating IP. Again, our intention is not to take his custom coding framework or any of his tools, so listing as his IP and listing the end service as company's seems more fair. – Mo K. Jul 21 '11 at 21:41

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