Can IP be used by directors’ other companies?

Dear Aunty B,

I have just formed a company with three others and we are all directors of the new company. The others belong to two other separate companies, and they have come together under one new company banner to complete a commercial venture.

One of the directors now demands that any IP developed within the new company remain the property of the directors and can be taken out and used by their other businesses.

He even requests that the IP is actually owned by the director who had the idea, and therefore belongs to their respective business.

What is the legal responsibility in this case? Does the IP developed for the new company remain the property of the new company or not?

KA, Brisbane

Dear KA,

Gee, your business sounds like fun. Just think, there is so much to fight about as the company gets off the ground. IP will be just the beginning!

You can move on to the shareholder’s agreement, the design of the products, how much to charge, dividends (or why there aren’t any), how much money you are paying your sales director, who gets the biggest office – you guys are going to have so much fun!

Seriously, there is a breed of businesspeople who just love to fight and quibble. They are greedy and fear being ripped off. They don’t share, they are not generous, and they create needless complications. In all, they make disastrous business partners.

I took your case to Uncle P (Paul Zawa, partner from legal firm Minter Ellison) who, after sighing deeply, asked whether there are any written agreements governing the directors’ relationships with the company.

Assuming not, he says, the basic question is whether the director created the IP as an employee of the company and as part of his or her usual duties for that company – which is the normal path most normal people take.

He also advises you to get some proper legal advice before you get into a stoush.

But my opinion? It sounds like a nightmare.

Have you ever sat in a meeting where dumbo comes up with a crap idea and everyone groans before someone says hang on and begins to work on dumbo’s crap idea and everyone gets really excited and by the end of the meeting crap idea is now the shining light and will single handedly propel the company into the global stratasphere and be the new Google?

Who takes credit for that idea? Huh? Dumbo??

If you have directors working across a group of companies then they naturally share ideas, cross fertilise – but then inevitably each company transforms the ideas to meet their own goals.

Look, I think you need to examine the relationship before you go any further.

A very wise man once gave me some very good advice when I was setting up a company. I felt my business partners had reneged on an agreement about how many shares we all got. The very wise man told me to bring it straight up with my business partners and state clearly what I thought was fair – and to remind them that was what we had agreed on verbally.

He says if they start to quibble tell them the deal is off, because that is going to be indicative of what they will be like for the rest of the business partnership and the company will be one of the 50% of business partnerships that are a disaster.

So I did what he said. They agreed straight away – and we have lived happily ever after.

If I were you, I would consider a range of options. Get that director out of the business. Or you quit the business. Or I would get great legal advice from experts like Uncle P.

Remember: Life is short.

Good luck,

Your Aunty B.