Facts
My client was an early-stage Delaware C-Corp founded by two engineers, with a third co-founder who served as commercial lead. Each founder had received a roughly equal restricted stock grant subject to four-year vesting with a one-year cliff. Ten months in, the commercial co-founder gave notice and left to take a role at an unrelated company. He then sent a written demand asserting that several pre-incorporation documents, drafts, and product diagrams he had authored before the company existed were his personal IP, not company IP, and that he intended to use them in a future venture.
The company had been formed in haste. The founders had signed standard incorporation documents but the assignment-of-IP provisions in those documents pointed to "all intellectual property developed in connection with the business," with no express schedule of pre-incorporation contributions and no separate confidential information and inventions assignment agreement covering the period before the company was incorporated.
What I did
I read the incorporation package, the restricted stock purchase agreements, the bylaws, and the founders' email and document trail from the months before incorporation. I identified two distinct legal questions: whether the unvested shares were forfeited under the restricted stock terms by operation of the cliff, and whether the disputed pre-incorporation work product had been assigned to the company under the company's standard IP-assignment language or had survived as personal IP of the departing co-founder.
On the equity question, the restricted stock agreement language was clear and the unvested shares were subject to forfeiture at the company's repurchase price. On the IP question, the analysis was harder and the company's position was strongest where the disputed work had been incorporated into shipped product, weakest where the disputed work had remained on the departing co-founder's personal machine and was never used in the company's commercial line. I drafted a written settlement proposal that conceded on the weakest items, asserted the company's position on the strongest items, and offered a small post-termination consulting payment in exchange for an unconditional written IP release.
Outcome
After the written settlement proposal and a short exchange between counsel, the departing co-founder signed an unconditional written release covering the IP that had been incorporated into the shipped product. The company released a narrow set of pre-incorporation drafts that had never been used commercially. The unvested shares were repurchased at the agreed price and a small post-termination consulting payment was paid against the release. The matter did not escalate to suit. Each matter turns on its facts; the outcome here does not predict the outcome on a similarly framed co-founder dispute.
Lesson
A founder dispute is two cases in one: the equity case and the IP case. The equity case is usually clean if the restricted stock paperwork was done correctly at incorporation. The IP case is usually messy because pre-incorporation work product rarely sits inside the four corners of a standard IP-assignment provision. Sign a separate confidential information and inventions assignment agreement at incorporation, with an attached schedule of pre-incorporation contributions, and the worst case shrinks dramatically. Doing it later, after a founder has already left, is doing it under leverage that has shifted away from the company.
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