When “We’ll be Together Forever” Goes Sour; How to Protect Yourself When Partners Part Ways (Part 3)

Jonathan Sparks | October 30th, 2013

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Part 1 and Part 2 of this post have to do with how we can protect ourselves—and our companies—from common, avoidable, legal issues. This entry is a continuation that gets into more depth, going through some specific examples.

A) Help! My Lead Designer got Poached by a Competitor!!!

Like a lot of things in life, the more successful you are, the more attractive you (and your business partners) are to others. If you run a successful business, competitors may try to steal your business secrets by poaching your business partners and / or employees. An easy, albeit incomplete, fix for this is incorporating non-compete agreements into your contracts:

Non-Compete Agreements

Non-compete agreements basically say, “whenever a person leaves the company for any reason, he or she hereby agrees to not enter into any business that directly competes with this company. Competition includes, but is not limited to, (and then you’d go on to list each type of industry, product, or service your company offers that you don’t want a former employee to engage in as a competitor).”

Courts generally limit these agreements by geography and length of time, so you’ll want to be specific about what you’re looking for, and be reasonable with the terms you put into your agreement. A contract that says something like “any leaving member agrees to never do any work of any kind in the video game industry anywhere in the world,” is sure to be thrown out by a judge because the contract language would prevent a person from being able to work at something they’re good at indefinitely—it would in essence deprive them of their livelihood. (Note that if a judge “throws out” a clause in your contract, the clause is considered void, and it’s treated as if you never agreed to it).

However, if you’re specific and limited in your non-compete agreement, as in “any leaving member hereby agrees not to work in a creative capacity for a FPS game design company in Atlanta, GA, for one year after leaving the company,” judges are much more likely to accept this provision.

B) What if it’s Just Not their “Baby?” How to Keep People Caring

The amount of hours an employee must spend working can be a very tricky part of your management agreement that you should spend some time considering. It’s usually best to come up with the basic minimum expectations for everyone that will be working for the company as a 9-5, or by specifying “part time.” Your expectations can be hourly, or depending on the type of business you’re running, based on the amount of content that needs to be created weekly or monthly.

Everyone works a little differently, though. Your greatest asset might be a promoter, who goes out and does the street-cred work, often after work hours, by networking and getting people excited about your product. It’s hard to nail down exactly how much value this is creating for your company, though, and how much marketing time should be expected.

In my experience, the easiest way to solve these issues is to include a provision wherein the members of the company get to vote, or put to a vote, whether to issue an official warning or even vote someone out altogether for not working enough. I seriously doubt that you’ll ever have to actually use this provision, but the mere fact that it’s there, will make everyone involved work harder; I guarantee it. No one wants to get fired for a cruddy work ethic—and particularly not when their peers are doing the firing.

C) Who Owns the Intellectual Property?

This is a hot issue among startup companies and one that deserves a great deal of deliberation. If, like a lot of startups these days, you decide against pursuing an actual patent (more on this in my post on How to Protect Your Work with Copyrights and To Patent or Not to Patent), then the question of who owns your company’s IP is very important to consider early on.

In the legal world, IP ownership has a tendency to default to whoever worked on it or designed it. The problem is that this means your partners will usually maintain their rights to your company’s IP even if they leave the company or –gasp—go to work for a competitor!

There are ways around this, however. You can write into your startup business agreements that, for example, all IP is owned by the company, or “every party to this contract agrees to waive any and all rights they may have now, or will obtain in the future, to any intellectual property involved with (your product) and assigns any rights to (your company).” Obviously every agreement will be different, but accounting for who owns what from the start will go a long way towards defending your company from others that could attempt to steal your IP after a bad break-up.

 

Are there any blog topics you’d like to see? Any legal questions you’d like answered? Please feel free to leave them in the comments section or shoot me an email. I’d be happy to help out.

– Jonathan Sparks, Esq.

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