Hello,
In an effort to make a long story short, I will leave out significant detail but try to capture the crux of the matter.
A friend of mine has a tech company and does consulting work. I also do tech consulting independently operating as an LLC. My friend was already engaged with a client (ClientCompany), and became aware that ClientCompany required some services in my area of expertise. My friend recommended me to ClientCompany, and ClientCompany offered to retain me as an hourly consultant in early January 2006.
When my friend engaged with SomeCompany, they required him to sign a contract with fairly aggressive IP boilerplate, regarding ownership of works made during his engagement. I did not sign, nor was I asked to consider signing such an agreement. I was simply retained as an hourly consultant based on my friend's referral.
For sake of simplicity and to facilitate payment of commissions to my friend in exchange for the placement referral, we agreed to coalesce our billings under my friend's banner. He would send a unified invoice and when payment was received from ClientCompany, he would deduct his commissions from the portion accrued from my billables, and pass the remainder on to me. This is a typical arrangement in our world.
No other aspect of our operations were co-mingled. It was common knowledge to all parties that I was an independent entity, it came up in discussion with the principals on several occasions and was clearly stated, no objections were made. ClientCompany dealt directly with me for my services. All materials I prepared and delivered to ClientCompany are on my own letterhead, etc. The reason why I bring this up becomes evident shortly.
Things went south when they were late paying their January invoice. At the end of February the president of SomeCompany asked my friend and I both to come to his home to meet with him. He informed us that his cash crisis had become critical and he would be unable to pay his February invoice on time. He said he had basically put the operation into dormancy and was considering bankruptcy. We were impressed with his candor during this discussion. It seemed as if he had identified the cause of the financial crisis and had addressed it directly by dismissing several key staff.
He told us he was expecting a sizable check from a particular customer and would have a small amount of additional operating capital within days. He asked us to consider bearing with him for two more weeks, and continue work toward a product he considered vital to close a deal with a new customer and resurrect his operations. He said repeatedly that he thought highly of our work and considered our services to be the backbone of his reorganized operations going forward if we would be willing to stay on a bit longer and help him through this crisis.
Faced with a decision of walking away and writing off a large AR balance, or extending him two more weeks of credit, we decided to continue our work. During the course of this work, I invented and created several unique bodies of functionality and presented my products to him and his remaining staff in a demonstration on 17 March as promised. In the course of this demonstration, I required him to sign an NDA (also on my own letterhead) stating that he would be exposed to proprietary intellectual property of my company beyond the scope of consulting work I had been retained to perform, and I have that document in my possession.
Unfortunately, the meeting to secure the new line of business never took place and the president has subsequently decided to take a staff position with a new company. SomeCompany continues operations with a skeleton crew in the meantime, and I have still not been paid for my outstanding AR balance. The president's new employer is allegedly going to take over some of SomeCompany's operational elements, presumably the remainder will be spun down after all of value has been stripped away and Day 91 is reached immunizing the new company from returning any assets to the bankruptcy trustee.
This brings me finally to my dilemma. The IP I developed has value in the market segment that SomeCompany is involved in. I would be inclined to shop my developments to other companies in the field. My concern is twofold:
First, although I did not sign any agreement regarding restrictions on work product, I am afraid that I could be subject to a potential suit by SomeCompany if I were to shop/sell my work to another company. Having that sword hanging over my head, even if it was only nuisance lawsuit fodder, would cause me some concern. Should I be worried about this? Is there precedent in Washington or elsewhere in contract law that would allow me to know with any probability whether or not SomeCompany would have grounds to mess with me in the future? I presume their argument would be predicated on the coalesced billing. Since we billed together under my friend's invoice, I presume they would argue that makes me an agent of my friend's company and any contracts or NDAs or restrictions my friend agreed to apply by extension to me, despite the fact that all parties were well aware that I am independent.
Second, I am concerned with what I might/should disclose to potential customers as I shop the products around. Certainly they would be concerned regarding potential liability down the road. I would not want to represent that my products and ideas were free of encumberance unless that were literally true. Is there any action I can take to shore up my position in this regard?
Thanks very much,
Aaron Salo
aaron.salo@iconridge.com
In an effort to make a long story short, I will leave out significant detail but try to capture the crux of the matter.
A friend of mine has a tech company and does consulting work. I also do tech consulting independently operating as an LLC. My friend was already engaged with a client (ClientCompany), and became aware that ClientCompany required some services in my area of expertise. My friend recommended me to ClientCompany, and ClientCompany offered to retain me as an hourly consultant in early January 2006.
When my friend engaged with SomeCompany, they required him to sign a contract with fairly aggressive IP boilerplate, regarding ownership of works made during his engagement. I did not sign, nor was I asked to consider signing such an agreement. I was simply retained as an hourly consultant based on my friend's referral.
For sake of simplicity and to facilitate payment of commissions to my friend in exchange for the placement referral, we agreed to coalesce our billings under my friend's banner. He would send a unified invoice and when payment was received from ClientCompany, he would deduct his commissions from the portion accrued from my billables, and pass the remainder on to me. This is a typical arrangement in our world.
No other aspect of our operations were co-mingled. It was common knowledge to all parties that I was an independent entity, it came up in discussion with the principals on several occasions and was clearly stated, no objections were made. ClientCompany dealt directly with me for my services. All materials I prepared and delivered to ClientCompany are on my own letterhead, etc. The reason why I bring this up becomes evident shortly.
Things went south when they were late paying their January invoice. At the end of February the president of SomeCompany asked my friend and I both to come to his home to meet with him. He informed us that his cash crisis had become critical and he would be unable to pay his February invoice on time. He said he had basically put the operation into dormancy and was considering bankruptcy. We were impressed with his candor during this discussion. It seemed as if he had identified the cause of the financial crisis and had addressed it directly by dismissing several key staff.
He told us he was expecting a sizable check from a particular customer and would have a small amount of additional operating capital within days. He asked us to consider bearing with him for two more weeks, and continue work toward a product he considered vital to close a deal with a new customer and resurrect his operations. He said repeatedly that he thought highly of our work and considered our services to be the backbone of his reorganized operations going forward if we would be willing to stay on a bit longer and help him through this crisis.
Faced with a decision of walking away and writing off a large AR balance, or extending him two more weeks of credit, we decided to continue our work. During the course of this work, I invented and created several unique bodies of functionality and presented my products to him and his remaining staff in a demonstration on 17 March as promised. In the course of this demonstration, I required him to sign an NDA (also on my own letterhead) stating that he would be exposed to proprietary intellectual property of my company beyond the scope of consulting work I had been retained to perform, and I have that document in my possession.
Unfortunately, the meeting to secure the new line of business never took place and the president has subsequently decided to take a staff position with a new company. SomeCompany continues operations with a skeleton crew in the meantime, and I have still not been paid for my outstanding AR balance. The president's new employer is allegedly going to take over some of SomeCompany's operational elements, presumably the remainder will be spun down after all of value has been stripped away and Day 91 is reached immunizing the new company from returning any assets to the bankruptcy trustee.
This brings me finally to my dilemma. The IP I developed has value in the market segment that SomeCompany is involved in. I would be inclined to shop my developments to other companies in the field. My concern is twofold:
First, although I did not sign any agreement regarding restrictions on work product, I am afraid that I could be subject to a potential suit by SomeCompany if I were to shop/sell my work to another company. Having that sword hanging over my head, even if it was only nuisance lawsuit fodder, would cause me some concern. Should I be worried about this? Is there precedent in Washington or elsewhere in contract law that would allow me to know with any probability whether or not SomeCompany would have grounds to mess with me in the future? I presume their argument would be predicated on the coalesced billing. Since we billed together under my friend's invoice, I presume they would argue that makes me an agent of my friend's company and any contracts or NDAs or restrictions my friend agreed to apply by extension to me, despite the fact that all parties were well aware that I am independent.
Second, I am concerned with what I might/should disclose to potential customers as I shop the products around. Certainly they would be concerned regarding potential liability down the road. I would not want to represent that my products and ideas were free of encumberance unless that were literally true. Is there any action I can take to shore up my position in this regard?
Thanks very much,
Aaron Salo
aaron.salo@iconridge.com
