How do I go about splitting IP between separating founders?

QUESTION:

My partner and I no longer get along. Over the past year, we’ve built some potentially valuable intellectual property. What’s the best way to split this IP between us? Should be both have full rights to it? Neither of us wants to pay for it, and we don’t want to be in a situation where neither of us can use it. Lucky, we don’t have any investors to worry about. It’s just the two of us. Any advice?

ANSWER:

Soody Tronson

Soody Tronson

by Soody Tronson, Founder of Soody Tronson Law Group

The following is not a legal opinion as I am neither your counsel nor aware of the particular facts and circumstances surrounding or involved with your issue. The following remarks are simply comments and should not be relied upon as a legal opinion.

What is your current partnership arrangement? Is it equal or one owns more than the other? That may provide you with some starting guidelines as how to divide up the IP. Timing, size and duration of contribution of each founder plays a role in the initial equity split: The earlier, bigger or longer the contribution to the company, the more equity a founder should receive.

Has the IP been assigned to your venture or does it remain as part of your personal property? In other words, if you formed a legal entity, has the title been or promised to be transferred to that entity. Under the US Patent laws, as every inventor has an equal, undivided interest in a patent unless and until that property interest is transferred by law (different foreign jurisdictions may have different laws).

This is really not a legal opinion rather a business and human behavior thought process. I assume you are hoping that this IP will actually yield into something even though your current venture is not. That is, you are hoping that one of you will come across a great opportunity where this IP may be of interest. The value of your IP is most likely in the eyes of the beholder … that is, its real value becomes apparent when you attract parties who might be interested in your IP. And that interest will most probably come as a result of one of you pounding the pavement. So, it would make sense that there would be an incentive for the person who will actively try to find that value and like everything else that person needs the incentive that would motivate him/her to do so.

You can, of course, do nothing and as stated above you will each retain an equal, undivided interest in the property (easy for now but potentially problematic in the future); or you can put in place an agreement that sets forth the responsibilities (if any) of each person and potential outcomes for various scenarios (e.g., if the IP gets monetized due to efforts of one person versus the other, that person gets X much interest while the other gets Y), and so forth.

The issue you face is not today when there are no investors and your current venture together is not materializing into what you had hoped: the issues can be sticky if and when one of you attracts that potential suitor for your IP.

Soody
http://www.stronson.com

Comments & Advice:
  1. dhshultz says:

    Given the constraints posed by the question, I believe that the most realistic outcome is for the parties to have equal, undivided interests in the IP, each founder having the right to exploit the IP in any manner without any obligation of accounting to the other founder.

    The parties should enter into a short agreement that states the foregoing and that properly wraps up / terminates their joint business activities.

    Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

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