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Can ex-employee legally take the assets and sell on their own, if an LLC Operating Agreement states ownership over these assets?

Charlotte, NC |

I own an LLC (website that sells an e-book, an audiobook, & features videos, pictures, written content and forum). I co-owned the company 50/50 ownership with the author of the book. We collaborated on this business completely, they wrote the book while I created the website, took the photos, videos, created the forum, and did all the research to optimize its visibility via google. Recently, the other member resigned and sold all their interest in the company to me. We have an LLC Operating Agreement (both signed) stating all assets belong to the company, (ebook, audio book, web content, photos, videos, forum). Now, they created a competing site, selling the LLC's book, unauthorized. Directing all our users to their new site, bashing my LLC and claiming copyright infringement against me.

They are now claiming copyright infringement against me for selling the company's book on the company website, solely on the basis that they are listed as the author of the book. They keep issuing DMCA Take Down notices to my company to sabotage it; however, the Operating agreement clearly states ownership over this asset. They also registered the copyright of the book in their personal name secretly (before the signed Operating Agreement was created) but it appears that they signed all of their rights of the book over to the company once they signed the agreement. Do they have any rights to sell this book and bash my company for continuing to sell it? Aren't they infringing on my copyright by selling the book on their personal site...with no intention of splitting the profits?

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Attorney answers 3


Is there a recorded copyright assignment from them personally to the company? If not you may have to initiate litigation to stop them from asserting ownership in this copyright, Likewise, if your LLC Buy-Sell contained a non-compete clause, you may have to sue to enforce it.

If you did have a lawyer to form this corporation, register the copyright this company's based on, handle the Buy-Sell of the company stock and its assets, etc., contact that lawyer. If you didn't think proper legal work was important til now, you now know you need a business/IP litigator.

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Sounds like you will have to possibly file for declaratory relief. Consult an attorney.

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I don't know which version of the transfer rules North Carolina's Circuit Court follows; depending on that, you may or may not have received the copyright by assignment and will probably have to go to court to resolve the issue. Hire a local IP attorney to help you figure this out; it's a very complicated doctrine with at least three major regional versions.

Basically, your author has a valid copyright in the work unless he or she signed a work-made-for-hire contract before beginning work on the book. Given the situation, though, I'm guessing you two went the "fair sailing means no lawyers" route from the beginning and are now dealing with the fallout of not properly establishing your legal relationship.

So, if the author owns the copyright, then the question becomes "what language was used in the sale documents," because that's going to determine (along with your Circuit's take on 201 and 202) how this plays out. Some courts hold that a sale of all business assets to another party will include all of the associated intellectual property where the economic reality is that the business would be useless without them - this is probably best for you. Some others just say that it's possible for such a sale to transfer copyrights but do a case-by-case analysis to determine whether to transfer or not - this one is still okay for you. Some courts, though, say that copyright transfers have to follow the black-letter language of the Copyright Act, which says that no transfer of copyright is valid unless in a signed and executed writing specifically stating that copyright will transfer - the best you can get absent such a writing, in those courts, is a license. That would probably be bad for you because I'm guess you didn't go to a lawyer when your partner sold out, either, and so no one told you how to write the purchase agreement so that you could be sure to get the copyrights.

So, the short answer? You really, really need to speak to a local IP lawyer to figure out what's going on here. You should have done so when you started the partnership and when your partner sold out, too, because the best a lawyer can do for you now is to perform triage on a horrible situation and it's likely to cost you more money and not get you the results you would have gotten if you'd just had it taken care of in the first place.

No information you obtain from this answer is legal advice, nor is it intended to be. You should consult an attorney for individualized advice regarding your situation. No attorney-client relationship is formed by my responding to your question.

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