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I've been working for a company as a contractor for several months. While working for this company, I created some seriously sensitive IP. This is IP that is nigh on patentable.

My employment with this company is based on a handshake deal. There was no employment contract, NDA, or even invoices for the paychecks I've received. I had even suggested signing an NDA when I started working, but the owner refused. The IP is software that I haven't even been released to the company (it's SaaS that I both author and run).

I've become disillusioned with the CEO of the company who is obviously making terrible choices for the company, while underpaying and overworking employees to an extreme and also treating customers poorly and overcharging.

I believe I can do a better job running the company, so I've decided to quit and start my own version. I am already well into the black, but I've used the old company's IP (only IP I've generated) and sales leads (picking up their lost, frustrated clients).

I have no intentions to deny the company access to this IP, but I do intend to use it fully.

Are there any implications to this, both ethical and legal? Assuming I've had no written interactions via e-mail saying that I've been paid to develop IP for this company.

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4 Answers

up vote 1 down vote

He takes you to court, you lose your business.

This is VERY dark and as you portray him he has some funds AND the character to take you to court, while you haven't even consulted a lawyer.

You will lose, especially if you are in the US, the moment he starts hitting you with court orders.

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up vote 1 down vote

I think that there are quite a few negative ethical implications to this, and it sounds like you aren't entirely comfortable with those.

A "handshake" deal can still be legally binding, although it's naturally very hard to prove what it was exactly that you originally agreed. Posting this online could be used as evidence, however.

It's the cliche advice, but consult a lawyer. You'll need one at some point regardless and this one of those big-deal kinds of questions that only a lawyer should be advising you on.

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A handshake is legally binding, but transferring copyright is an exception to that general rule: it must be done in writing, otherwise only a non-exclusive license is granted. Which means both the company and the contractor could keep using whatever code the contractor wrote. – Alain Raynaud Aug 26 '11 at 15:39
up vote 2 down vote

Why do say it is the company's IP? This website has some helpful information about copyright ownership:

If a work is created by an independent contractor (that is, someone who is not an employee), the work may still be a work for hire, but the definition is much harder to meet. In order for the work of an independent contractor to be a work made for hire, the following facts must exist:

  • the work must be specially ordered or commissioned;
  • the work must come within one of the nine categories of works listed in the definition above; and
  • there must be a written agreement between the parties specifying that the work is a work made for hire.

It looks like this applies to you since you are an independent contractor and not an employee. It also looks like you own the copyright to the code you have written since there is not a written agreement saying this was a work for hire.

I don't know whether ethics is on your side but the law seems to be (get a lawyer to find out for sure). The CEO who hired you is incompetent in that he should have had a written agreement saying it is a work for hire.

Looks like you are free to continue to providing services to this company and use the code you wrote for other purposes as you see fit.

One final note, you mention that the code may be patentable, but it is not clear who the inventor of the invention is. If you implemented someone else's invention, then the owner of the invention is the inventor and not the implementor.

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Not sure - no "written agreement" as in contract is worthless if there are tons of emails about specifications etc. that then form a written agreement. It could be theft of trde secrets. This is VERY muddy water, plus - being muddy he may have to defent in court which may fail due to lack of funds, especially in the US. – NetTecture Aug 26 '11 at 13:59
@NetTecture, if there is an email saying that this was a work for hire, then that changes everything. If not and no other document says that, he owns the code he wrote. – Kekito Aug 26 '11 at 14:14
Yes, but it may still contain trade secrets which make it hard for him to USE It outside. It really is a hard area - and one he has to be willing to defend, which may cost hundreds of thousands of USD. – NetTecture Aug 26 '11 at 14:29
@NetTecture, this is going beyond the question, but since he has not signed an NDA (and assuming there wasn't an email where he agreed to keep things secret) it looks like he doesn't have an obligation to keep anything secret and thus there are no trade secrets to worry about. – Kekito Aug 26 '11 at 14:43
Yes, and you would assume that protects him from ligitation? Wake up. Someone takes him to court, because he MAY have a case, he still has to defend. – NetTecture Aug 27 '11 at 13:27
up vote 0 down vote

Seems to me the Law is on the side of who files the lawsuite first and not who is right. I'd file a lawsuite first. But on a serious note, if you have an ethical background and you know for a fact that he hired you to write this code then it was "code for hire" and you don't own the rights to it. But it sounds like you got dis-illusioned with the CEO and wanted to get back at him. What you should have done was to make him an offer and worked out some deal where he'd get some royalties and such.

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