It’s not an uncommon tale:
- A startup company hired a software programmer as an independent consultant. The company paid the consultant some $370,000 over three years as part of a $6 million overall development effort. [EDIT: The startup also granted shares of its stock to the consultant.]
- Eventually, the company started to run out of money and stopped paying the consultant’s invoices.
- The consultant resigned from the engagement. The company hired someone else to continue development of the consultant’s code — in response, the consultant sued for copyright infringement.
- The existence of the lawsuit delayed the company’s product launch. Worse, it caused problems for the company’s efforts to raise much-needed additional venture capital.
The consultant’s code didn’t qualify as a work made for hire. Consequently, the consultant retained ownership of the copyright.
The written contract between the company and the consultant was sketchy: It didn’t address who owned the copyright in the consultant’s code, nor what the company was allowed to do with it.
A U.S. district court ruled that the company may well have had an implied license to modify the consultant’s code — see Numbers Licensing, LLC v. bVisual USA, Inc., No. CV-09-65-EFS (E.D. Wash. Jul. 15, 2009) (denying consultant’s motion for preliminary injunction). (Hat tip: Loeb & Loeb.)
This preliminary ruling didn’t undo the damage that the startup caused to itself, though:
- after spending a lot of money to have the software developed, the startup was forced to spend more money — not to mention management time — defending its right to do further development;
- the existence of the ownership dispute, and especially the lawsuit, put the startup’s very existence in danger.
A better approach would have been for the startup to have included, in the contract, a clause explicitly stating its right to modify the consultant’s code. The sample clauses for a services contract include an optional provision to that effect — scroll down to the clause, “Right to further develop deliverables.”
EDIT: I certainly sympathize with the consultant, who wasn’t being paid for the work he had done. But his lawsuit threw a wrench into the startup’s efforts A) to launch, and B) to raise more money, either of which would have measurably improved the odds and timing of the consultant’s getting paid. In this case, the consultant shot himself in the foot just as surely as the company did.