Copyright Ownership and Non-Compete Agreements as a Contractor

[msfrazer1]

20 months ago I entered into what was suppose to be an equal partnership with my brother and his business partner to build and sell a web design service (compiled from 3rd party software solutions) under a development company (an LLC). A seperate LLC was set up to handle sales and marketing. I was in charge of sales and marketing and signed a non-compete (for which I was paid $125.00 as consideration) with the understanding that I would be made private contractor initially but within 6 months would be a 25% owner of both the sales and the development LLC's.


In an effort to keep the company going and keep my brother and partner from losing their initial investment of $10,000 (for 2 months of web designer salary, server leasing and software programs purchases) I searched for and found a custom programmer who was willing to create a custom software pkg and develop it per our specs for a per-user design fee and an equity position (25% ownership in a new company that would be formed to sell this new software pkg). There was no employment agreement drawn up between this designer and my brother's company and he was to be paid as a contractor until the new company was formed (giving him ownership of the company). My brother and his partner refused to set up the new company until there was some profit flowing into the old company to pay for incorporation expenses. After 18 months the new designer and I had 10 clients each paying a couple hundred dollars per month but still no pay and no ownership. For the last 8 months my brother and his partner have failed to pay the designer and me a portion of the monthly client income (unfortunately a verbal agreement). They further asserted that we were keeping them from incorporating because we had refused to sign a new non-compete agreement (which, as worded, would put us in conflict with our full time employers).

Turns out they had actually incorporated that new company 8 months earlier with just the two of them as 50/50 owners.

By this time my bother and his partner both moved out of Michigan and apparently failed to bill the clients and stopped paying us as agreed.
When questioned they claimed that they could not pay us our design and commission fees because they were not getting paid by any of the clients I signed up (though we collected the design fees up front and know that those were paid). After repeated emails requesting that we be paid for services rendered and email responses (which we have copies of) suggesting that "you get paid when money comes in... business 101" We decided to terminate our relationships with their company and spent 30 days redesigning and improving the software before setting up our own company. We leased our own server and had two new clients when we started getting calls from their clients because my brother's server was shut-off for non-payment. The clients wanted to know if we could get their sites back online using their passwords and the copies of their data (which they owned per their contract with my brother's company). We had each client sign an authorization form allowing us to transfer their domain names to point to our server and got their sites under contract with our new company.


So they questions are...

Can I be held to a non-compete I signed under the original development company when they failed to pay me as verbally agreed or to add me as a 25% owner?

Does my brother have any basis for a lawsuit against my partner and I when he failed to pay the server to keep those client sites running and when those clients signed request for transfer documents and new contracts with our company because their sites went down (when he failed to pay his server bill)?

Who owns the software developed by my partner as a private contractor with no written contract or written document transferring ownership of his work to their company (understanding that they also refused repeated requests for payment and ignored invoices for his time and coding? :roll:

[Mr. Knowitall]

Can I be held to a non-compete I signed under the original development company when they failed to pay me as verbally agreed or to add me as a 25% owner?

Is the original LLC still active, or has it lapsed? (You can check here.) If your agreement was with an LLC that is no longer active, it would have to be reinstated before it could press a claim against you. Further, it would be difficult for the LLC to assert that it is reasonable to enforce a noncompetition agreement when they aren't even in business any more.

Does my brother have any basis for a lawsuit against my partner and I when he failed to pay the server to keep those client sites running and when those clients signed request for transfer documents and new contracts with our company because their sites went down (when he failed to pay his server bill)?

Again, the first question is whether you had a contract with your brother, or only with the (defunct) LLC. It further depends upon the terms of the contract. But it sounds like any breach by you would have followed the abrogation of the contract by your brother. (That is, it sounds like he had long ceased trying to live up to his end of the deal.)

Who owns the software developed by my partner as a private contractor with no written contract or written document transferring ownership of his work to their company (understanding that they also refused repeated requests for payment and ignored invoices for his time and coding? :roll:

Under Michigan law, as Michigan appears to be the state where the contract was entered, intellectual property rights are retained by the employee or independent contractor unless those rights are expressly assigned to the employer. So with no contract, it appears that your partner would retain all of the rights to the software he developed.