Partnership Horror Stories…..”Come to Life”.
It isn’t everyday that we get contacted by the subjects of a post and usually, we don’t talk specifically about the cases that we are analyzing. Maybe it is because we might use it later as case law or maybe we don’t want to draw attention… Either way, we were so excited to see one of our posts come alive about partnership horror stories! We recently got an email from Erick Woods from Woods v. Resnick interested in how we came across his case and commented ‘interesting perspective’. Never one to back down from what seemed like a challenge, we offered Erick the opportunity to tell us why he thought our perspective was interesting and here is how the conversation went:
EW: Hi Natalie, Just read your blog: http://sulimanilawfirm.com/horror-stories-of-partnerships-without-agreements.html Out of curiosity, how did you come to write about the case?
NS: I came across the case while researching what happens to IP absent a partnership agreement since I often have to answer the question of why an agreement is needed. I noticed you commented ‘interesting perspective’… did we get something wrong? I would love to hear your thoughts.
EW: It was mildly surprising to discover your article. You got it pretty much right given the documents in the case.
…. it seem as though my former business partner lost his IP, which isn’t the case. In this situation, there were already similar systems on the market and everything in it (formulas) was either public domain or the IP of others. What was left was the implementation, which we had always agreed was my property – until it became monetized. So, I was protecting my IP and the judge agreed.
It’s ironic you used the word “absent” – my partner was essentially absent from the business from June, 2004 onward (only 6 months in), only doing what it took to keep the cash flowing so he could get a check. He was responsible for sales and accounting, but refused to do sales. That left me doing everything for 5 years in a severe imbalance in the workload. In that regard, I got screwed by not having an agreement.
I let this go so long before filing the dissolution and other because my business partner and I had verbal agreements and commitments. I held up my end and, in return, was taken for a ride. I’d known him since he was born (I’m a few years older). His parents and mine were very good friends. I didn’t want to upset the apple cart, but it came to a point that I had no choice.
Anyway, that’s all on the record. It completely sucked being in it, but I’ve had an interest in copyright law going back 15 years or so. That made it somewhat interesting, easier to engage and reflecting isn’t as bad.
NS: Thanks so much. It really is good to get your perspective and if you don’t mind, would love to add it as a follow up. IP issues are certainly interesting when it comes to partnerships and collaboration in general. I like to get my clients to put it in writing and it is frustrating to see things end up in litigation when forethought might have prevented it. Then again some partnerships, like a divorce, end up so badly there might not be any other route…
EW: A couple of things come to mind ….
1. My business partner had no programming training or experience and never wrote any source code. He had never seen anything other than tiny snippets of the source code for this application (on my screen), contrary to claims made in testimony. Not really relevant, but a point I think needs to be understood when it comes to the copyright issues. The judge clearly saw through that smoke and mirrors game – a credit to him.
2. We did have an agreement drafted, but couldn’t agree on the terms in general, so it was just a non-executed document that was forgotten as time passed. Can’t hold either party to an agreement that was never agreed upon – as it wasn’t executed, the only intent that could be assumed was that there was no agreement.
In this case, regardless of the existence of an agreement, it probably would have been litigated due to the history and facts in the case. At the very least, had an agreement been in place, there would have been breach of contract claims re: a failure to sustain obligations on the fiduciary duty to the company and conflict of interest claims relating to his other business.
I really give the judge (Magistrate Judge Steven Crocker) a lot of credit. He was able to filter the crap in the case and hit the nail on the head of almost every argument and subsequent opinion. The case was, for a layman, highly technical with a lot of confusing details. He and his clerks did a very good job in his opinions and decision. As a friend said, Judge Crocker “got it”.
NS: Thank you! …. Often I am on the defense side, so this is great info. It is really important to have a judge that ‘gets’ it and then can apply it to the legal standards.
EW: Well, in this case, had I done what most would do and just take my ball and go home, I would have ended up on the defense. I took a proactive approach and tried to resolve it in several ways before resorting to legal action. As it was, I was the plaintiff, but had to operate more like a defendant.
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