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The key point of the story is not "company had bad contract". It's "company stopped paying invoices for work that had been done, annoying its workers and causi

The key point of the story is not "company had bad contract". It's "company stopped paying invoices for work that had been done, annoying its workers and causing them to file a lawsuit". If you want your product to go to market smoothly, pay the invoices of the people who build it for you.

dctoedt 17y ago
Pay the invoices, using what? The company stopped paying because it was running out of money -- and the developer's [EDIT: resignation and subsequent] lawsuit threw a wrench into the company's efforts A) to launch, and B) to raise more money, either of which would have measurably improved the odds of the developer's eventually getting paid. [EDIT: Keep in mind that the developer quit; the startup had to hire someone else to take over in order to get its product launched. What was the company supposed to do, fold its tent because one unpaid consultant -- who had also been given company stock, BTW -- decided to throw his legal weight around? I doubt many founders would agree.] I sympathize with the developer, but in this case he shot himself in the foot just as surely as the company did.
- dablya 17y ago
  The company hired someone else to continue development of the consultant’s code — in response, the consultant sued for copyright infringement.
- pmjordan 17y ago
  Wait, you're saying companies should be able to get away with promising to pay people for work and then not follow through? How could this ever be a good idea? Since he sued them for copyright infringement, that means they used code they hadn't paid for. If they'd realized they couldn't pay, told him as much and deleted any code developed during the unpaid time span, he might still have tried to sue for damages based on breach of contract, but not copyright infringement.
  - dctoedt 17y ago
    Of course it's not a good idea - but companies do run out of money. When they do, the relevant question isn't, how do we inflict further punishment; it's, how can we maximize the chances of people getting paid. The developer could have just sued for the money owed him, without adding the incendiary copyright-infringement charge. This was an example of a circular firing squad (well, to the extent you can have a circle with two people). It looks to me as though all hands played it badly.
    - dablya 17y ago
      If the company is operated in such a way that it promises to pay people and then doesn't, perhaps a more relevant question is, how do we keep more people from getting scammed into working for free.
    - sophacles 17y ago
      I mostly agree with you, but I have one serious doubt remaining. If the company in question was so broke, how could they hire a new contractor instead of just paying the current one? That action leaves a bad taste in my mouth, I think perhaps the original developer had good reason to want more than just the money they owed him for his contract work. It looks to me like there were lies involved, at least somewhat.
      - dtf 17y ago
        Maybe the new contractor was on a much-reduced rate. Hire an experienced developer to do most of the work, don't pay him for the work he's done, then hire a new grad to finish it off?
    - antonovka 17y ago
      The fact that the company was able to hire an additional contractor demonstrates that they had the finances available to pay all or part of their outstanding debt. The use of copyright-infringement forces the company to meet their ethical and legal responsibilities immediately, before proceeding with leveraging his work. It's not the contractor's responsibility to provide the corporation a bridge loan.
- TallGuyShort 17y ago
  If they simply stopped paying his invoices as the article states, then that means the consultant had already done work that he still hasn't been paid for. Regardless of who owns the copyright, if the company still hasn't paid him for those invoices, they have no claim whatsoever to those last few weeks of work, regardless of any contract.
mikeryan 17y ago
I think its a combination of mistakes both in the way the company handled it and a bad contract. Whether work is "Work For Hire" or not should be in any contract with someone creating code or designs. I personally wouldn't hire someone without stipulating that all code and or designs (this comes up with getting source PSDs a lot) is WFH.
grellas 17y ago
An unpaid developer normally cannot sue for copyright infringement, even when the work has not been paid for (unless the contract explicitly states that the IP rights transfer only upon payment, which few contracts do). The problem here is that the underlying contract was not done as a work for hire. Because of this, even if the contractor had been fully paid, all the startup would have obtained as a result of the development effort would have been a license to use the work product as contemplated by the contract. Such a license would normally not have included a right to modify the work without the permission of the copyright owner (i.e., the original contractor). Thus, the startup put itself in a horrible legal bind, not from its failure to pay as such (though this obviously inflamed the situation so as to bring on a lawsuit), but from its failure to have a work-for-hire agreement in place when it commissioned the work. Even without an immediate lawsuit, the underlying problem would not have gone away. Imagine VCs doing their due diligence for a funding after this work had been done and discovering that a major piece of the IP used in the company's business had been done under a contract that did not give rights in that IP to the company (this would be apparent to a trained lawyer simply from examining the face of the contract). In such a case, unless the startup were able to get a release from the contractor, the startup would still face the threat of an infringement claim whenever it attempted to modify this code without the original developer's consent. Thus, without a release from that developer, funding would still have been impeded and likely blocked. Even with the lawsuit as filed, it appears that the startup has obtained only a temporary reprieve when the judge denied the application for the preliminary injunction. That denial is based on a judge's assessment of the contractor's likelihood of success on the merits of his claims and on weighing equities of what is fair to do pending a full trial on the merits. Thus, while the company squeaked by this phase, a cloud still hangs over its future depending on what eventually happens at the time this thing comes up for a real trial. This cloud is a clear deterrent to investors putting money into such a company. In practical terms, this scenario is mutual self-destruct for the contractor and for the startup unless they settle up, which means they likely will.
- timwiseman 17y ago
  You have some well thought out reasoning, but I have to respectfully disagree with a couple of points. (Obligatory IANAL.) An unpaid developer normally cannot sue for copyright infringement, even when the work has not been paid for Again, IANAL but I do not believe this is true. First, in America anyone can sue for just about anything even if the basis is flimsy in the extreme. So the developer could potentially sue no matter what the circumstances. Now, if he was unpaid he can sue with a real chance of winning. Even if the contract states that the IP belongs to the company, they break the contract by not paying him in the time specified by the contract, and since they broke it he can argue that it is invalid and that he therefore owns the product of his work, even if they paid for most of it. It is similar to the fact that a mortgage company can repossess even if you are down the last payment if you fail to make that payment. As to the VC and their due dilligence, you are completely correct, but there is a caveat. Most developers (remember he has a reputation on the line as well as stock or options in the company to think about) would be quite willing to formally sign over the IP after the fact if they had been treated well. This becomes doubly true if that developer talks to his attorney and is told that the company probably has implied ownership (or at least full rights to modify) under Numbers Licensing, LLC v. bVisual USA, Inc as is pointed out in the original article. And finally: In practical terms, this scenario is mutual self-destruct for the contractor and for the startup unless they settle up, which means they likely will. This is probably what he is looking for. I am guessing here, but he is probably hoping for a combination of more equity and some secured bonds. The first will give him a big (or bigger) payoff later if the company does well, and the second will give him first (or at least very early if others also hold secured bonds) shot at the scraps if the company folds.

dctoedt 17y ago

Pay the invoices, using what? The company stopped paying because it was running out of money -- and the developer's [EDIT: resignation and subsequent] lawsuit threw a wrench into the company's efforts A) to launch, and B) to raise more money, either of which would have measurably improved the odds of the developer's eventually getting paid. [EDIT: Keep in mind that the developer quit; the startup had to hire someone else to take over in order to get its product launched. What was the company supposed to do, fold its tent because one unpaid consultant -- who had also been given company stock, BTW -- decided to throw his legal weight around? I doubt many founders would agree.] I sympathize with the developer, but in this case he shot himself in the foot just as surely as the company did.

dablya 17y ago
The company hired someone else to continue development of the consultant’s code — in response, the consultant sued for copyright infringement.
pmjordan 17y ago
Wait, you're saying companies should be able to get away with promising to pay people for work and then not follow through? How could this ever be a good idea? Since he sued them for copyright infringement, that means they used code they hadn't paid for. If they'd realized they couldn't pay, told him as much and deleted any code developed during the unpaid time span, he might still have tried to sue for damages based on breach of contract, but not copyright infringement.
- dctoedt 17y ago
  Of course it's not a good idea - but companies do run out of money. When they do, the relevant question isn't, how do we inflict further punishment; it's, how can we maximize the chances of people getting paid. The developer could have just sued for the money owed him, without adding the incendiary copyright-infringement charge. This was an example of a circular firing squad (well, to the extent you can have a circle with two people). It looks to me as though all hands played it badly.
  - dablya 17y ago
    If the company is operated in such a way that it promises to pay people and then doesn't, perhaps a more relevant question is, how do we keep more people from getting scammed into working for free.
  - sophacles 17y ago
    I mostly agree with you, but I have one serious doubt remaining. If the company in question was so broke, how could they hire a new contractor instead of just paying the current one? That action leaves a bad taste in my mouth, I think perhaps the original developer had good reason to want more than just the money they owed him for his contract work. It looks to me like there were lies involved, at least somewhat.
    - dtf 17y ago
      Maybe the new contractor was on a much-reduced rate. Hire an experienced developer to do most of the work, don't pay him for the work he's done, then hire a new grad to finish it off?
  - antonovka 17y ago
    The fact that the company was able to hire an additional contractor demonstrates that they had the finances available to pay all or part of their outstanding debt. The use of copyright-infringement forces the company to meet their ethical and legal responsibilities immediately, before proceeding with leveraging his work. It's not the contractor's responsibility to provide the corporation a bridge loan.
TallGuyShort 17y ago
If they simply stopped paying his invoices as the article states, then that means the consultant had already done work that he still hasn't been paid for. Regardless of who owns the copyright, if the company still hasn't paid him for those invoices, they have no claim whatsoever to those last few weeks of work, regardless of any contract.

mikeryan 17y ago

I think its a combination of mistakes both in the way the company handled it and a bad contract. Whether work is "Work For Hire" or not should be in any contract with someone creating code or designs. I personally wouldn't hire someone without stipulating that all code and or designs (this comes up with getting source PSDs a lot) is WFH.

grellas 17y ago

An unpaid developer normally cannot sue for copyright infringement, even when the work has not been paid for (unless the contract explicitly states that the IP rights transfer only upon payment, which few contracts do). The problem here is that the underlying contract was not done as a work for hire. Because of this, even if the contractor had been fully paid, all the startup would have obtained as a result of the development effort would have been a license to use the work product as contemplated by the contract. Such a license would normally not have included a right to modify the work without the permission of the copyright owner (i.e., the original contractor). Thus, the startup put itself in a horrible legal bind, not from its failure to pay as such (though this obviously inflamed the situation so as to bring on a lawsuit), but from its failure to have a work-for-hire agreement in place when it commissioned the work. Even without an immediate lawsuit, the underlying problem would not have gone away. Imagine VCs doing their due diligence for a funding after this work had been done and discovering that a major piece of the IP used in the company's business had been done under a contract that did not give rights in that IP to the company (this would be apparent to a trained lawyer simply from examining the face of the contract). In such a case, unless the startup were able to get a release from the contractor, the startup would still face the threat of an infringement claim whenever it attempted to modify this code without the original developer's consent. Thus, without a release from that developer, funding would still have been impeded and likely blocked. Even with the lawsuit as filed, it appears that the startup has obtained only a temporary reprieve when the judge denied the application for the preliminary injunction. That denial is based on a judge's assessment of the contractor's likelihood of success on the merits of his claims and on weighing equities of what is fair to do pending a full trial on the merits. Thus, while the company squeaked by this phase, a cloud still hangs over its future depending on what eventually happens at the time this thing comes up for a real trial. This cloud is a clear deterrent to investors putting money into such a company. In practical terms, this scenario is mutual self-destruct for the contractor and for the startup unless they settle up, which means they likely will.

timwiseman 17y ago
You have some well thought out reasoning, but I have to respectfully disagree with a couple of points. (Obligatory IANAL.) An unpaid developer normally cannot sue for copyright infringement, even when the work has not been paid for Again, IANAL but I do not believe this is true. First, in America anyone can sue for just about anything even if the basis is flimsy in the extreme. So the developer could potentially sue no matter what the circumstances. Now, if he was unpaid he can sue with a real chance of winning. Even if the contract states that the IP belongs to the company, they break the contract by not paying him in the time specified by the contract, and since they broke it he can argue that it is invalid and that he therefore owns the product of his work, even if they paid for most of it. It is similar to the fact that a mortgage company can repossess even if you are down the last payment if you fail to make that payment. As to the VC and their due dilligence, you are completely correct, but there is a caveat. Most developers (remember he has a reputation on the line as well as stock or options in the company to think about) would be quite willing to formally sign over the IP after the fact if they had been treated well. This becomes doubly true if that developer talks to his attorney and is told that the company probably has implied ownership (or at least full rights to modify) under Numbers Licensing, LLC v. bVisual USA, Inc as is pointed out in the original article. And finally: In practical terms, this scenario is mutual self-destruct for the contractor and for the startup unless they settle up, which means they likely will. This is probably what he is looking for. I am guessing here, but he is probably hoping for a combination of more equity and some secured bonds. The first will give him a big (or bigger) payoff later if the company does well, and the second will give him first (or at least very early if others also hold secured bonds) shot at the scraps if the company folds.