Summary: If a member of a multi-member LLC develops software that the
LLC expects to benefit from, who owns the software and rights to it? 
The developer or the LLC?

Situation: One member of a multi-member LLC is developing software
that the LLC hopes to use.  The LLC has never been in possession of
either the software or the code.  The developing member has not
received any compensation or payment for this software.  No contract
or members' agreement specifically references this software.  The
LLC's success depends on having this software or software like it. 
The developer is willing to accept termination of his interest in the
LLC if necessary to preserve his copyright on the software and code. 
The code is not complete.

Questions: 1) What rights, if any, does the LLC have to the software
and what would it need to prove to claim those rights?  2) Can the
developer member claim that the software is his intellectual property
(citing that it was not developed solely for the LLC) and the LLC has
no rights unless he explicitly grants them?  3) Can the developer
allow the LLC to only "use/modify" the software, but not to
"redistribute" it, reserving that right for himself.

More info:
* The developer believes that giving up his rights to the software
brings undue risk on him should the LLC fail.  He plans to give the
software over to the LLC only when the likelihood of the success of
the LLC outweighs his perceived value of the code.
* The other members dispute that the developer has any rights to the
code and that it is the property of the company because it is the
developer member's fiduciary duty to contribute it because the success
of the company depends on it.

P.S. Also it would be nice just to get a suitable amount of legal
terms that describe this situation so that I know how to research it
myself.  I would consider an answer containing that as adequate.

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Clarification of Question by localhost-ga on 29 Jul 2005 10:08 PDT

Also I must add the other LLC members feel that their investments in
time and money were based on their belief that the LLC's rights to the
code were a sure thing.  Their basis for this belief is that the
developer member did not tell them otherwise.

The developer never promised rights explicitly nor does he belief he implied them.

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Clarification of Question by localhost-ga on 29 Jul 2005 13:01 PDT

In response to ipfan's comments:

There actually had been talk of making the developer an employee (when
already a member), but no employment agreement was made and no
compensation was paid or guaranteed to the developer.  Whether or not
that constitutes employment is perhaps a different question.  Let's
assume that the developer is not an employee unless the above scenario
constitutes legal employment.

There are no joint authors.  The code was written in its entirety by
the member, and no other party has modified it (or even seen it).

There is code that predates even the developer's membership into the
LLC.  At the time of the membership, neither the developer nor the
members were aware that the preexisting code would become useful to
the LLC.  The preexisting code makes up a relatively small portion of
the code but is much of the basis for the concept.

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Clarification of Question by localhost-ga on 29 Jul 2005 13:14 PDT

To clarify my clarification, the preexisting code was also authored by
the developer.  The copyright on that code has not been registered.

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Clarification of Question by localhost-ga on 29 Jul 2005 19:55 PDT

Here are questions paraphrased and answers as honest as possible. 
Please note that the test seems to be for independent contractors vs.
employees, so it is difficult to answer some due to the developer's
member status.  Also developer is not paid at all, and these tests are
for employment tax purposes, which also makes some questions hard to
answer.  All-in-all the results are that the worker is much more like
an independent contractor.  Does that mean that works done by
independent contractors are not necessarily "works for hire?"

1. Instructions: Does company set where when and how?
   No, No, and No (independent)
2. Training: How much training did worker receive from company? 
   None (independent)
3. Integration: How important is worker's service to company success?  
   Very (employee)
4. Services Rendered Personally: Is it required that worker perform
work personally or is it permissible to substitute third party
services.
   Substitution permissible (independent)
5. Hiring assistants: Worker is in charge of hiring, supervising, and
paying their own assistants?
   Worker is permitted to do so but has not.  Recently there was added
an assistant, which some, but not all the other members have hired and
pay.  He has not assisted in the code in question. (independent?)
6. Continuing relationship: Workers perform work regularly: 
   Work has been continual (employee)
7. Set hours of work: Who sets work hours?  
   Worker (independent)
8. Full time required: Do you require full time work? 
   Full time is not required (independent) note, though, that worker
has averaged about 40 hours per week lately
9. Work done on premises:
   No (independent)
10. Order or sequence set: Does worker set own order and sequence?
   Yes (independent)
11. Reports: Is worker required to submit regular reports.
   There is usually a weekly members' meeting where updates are given,
I don't think this is what this means, but close enough (employee)
12. Payment Method: By time worked/time spanned or by the job?
   No payment (independent)
13. Expenses: Who pays travel and business expenses?
   There have been none (?)
14. Tools and materials.  Who furnishes tools and equipment?
   All workers tools and equipment are his own (independent)
15. Investment. How great is the worker's investment in the facilities
and equipment used in performing services.
   Very large (independent)
16. Profit or loss.  How great is the risk to worker of profit or loss
in rendering service?
   Since there is no dividend unless the LLC is successful, and no pay
for services, the risk is great. (independent)
17. Works for more than one person at a time.  How many businesses
does worker perform services for at a time.
   As many as three at a time (independent)
18. Services available to general public.  Does worker hold their
services out to public through business cards, ads, or promos etc?
   Yes (independent)
19. Right to Fire? Can you fire the worker at any time
   No, worker is a member (independent)
20. Right to Quit? Can worker quit at any time without incurring liability?
   No, worker is a member (independent).

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Clarification of Question by localhost-ga on 01 Aug 2005 10:47 PDT

The members' agreement does not specify contribution.  It mentions
fiduciary duty but does not define that or give specific fiduciary
duty to any particular member.  Actual contribution is not clear.  The
developer came to the company after it had already formed and was
originally contracted (but only verbally) to the company to produce
some software (not the software in question) for a certain price.  The
developer proposed membership in lieu of payment which was accepted. 
The LLC then later developed the idea concerning the software in
question.  Note: It would seem that the originally verbally contracted
software also fails to meet the employment test also.

Is the developer an employee of the LLC or just a member?  Unless the
developer is an employee of the LLC or has signed an agreement
assigning the copyright to the LLC, the developer retains ownership of
the copyright on the facts as you've stated them.

Assuming the developer is neither an employee nor is there a signed
assignment document, the developer may license rights to the software
to the LLC on any terms the developer sees fit.  A member of an LLC
has no fiducicary duty to assign rights to intellectual property owned
by the member to the LLC.  The other members failed in THEIR fiduciary
duty to the LLC by not securing a written assignment of copyright to
the code from the developer, if indeed the code is mission critical to
the LLC.

The developer should, when the code is complete, also register his or
her copyright in the code with the Copyright Office.

Question: are there any "joint authors" of the code, i.e., did any
other person make signficant contributions to the code's authorship or
is the code based in large part on preexisting content (some other
source or object code)?

I posted a clarification to answer ipfan's questions

Determining whether the developer was an "employee," despite the
absence of a singed employment agreement, is critical.  Please apply
the 20 factors found at http://www.toolkit.cch.com/text/P07_1115.asp
and tell us what the results are.

I posted another clarification.  Thank you, so far, for this help,
this has been quite useful.

What were the contributions of each member and how do members share in
profit and loss?

You ask: "Does that mean that works done by independent contractors
are not necessarily 'works for hire?'"

By definition, works done by independent contractors are NOT works
made for hire under copyright law unless certain prerequisites are
fulfilled.  A work made for hire is either (a) a work created by an
employee (hence the need for the foregoing analysis) or (b) a work
created by an independent contractor if the work is a work "specially
ordered or commissioned for use as a contribution to a collective
work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation, as an
instructional text, as a test, as answer material for a test, or as an
atlas, [AND] the parties expressly agree in a written instrument
signed by them that the work shall be considered a work made for
hire."  See 17 USC Section 101 (definition of work made for hire).

The code was not written by an employee as far as I can tell based on
your 20 factors analysis, nor was it within the statutory definition
in quotes above, so unless the developer actually signed a contract
assigning the rights in the code to the LLC, it seems pretty clear to
me that the developer owns it.  If I were the developer's attorney, I
would encourage him or her to register the copyright immediately and
then approach the LLC about taking an actual written license since if
the LLC is permitted to continue to use the code absent a written
license, an implied license might be found to have been created by the
parties' conduct, and that's bad since implied licenses have no
express terms, and that's bad for the copyright owner.

There is a lesson here for anyone engaging a non-employee to create
copyrightable  work?get an assignment of the copyright in writing!

cjhowe's question is very good because the LLC may argue that the
developer "contributed" the code, and that would work an assignment. 
What does the member contribution agreement say?

I posted a clarification in response to cjhowe's question on contribution.

After all this back and forth, I cannot think of a scenario in which
the LLC could successfully claim rights to the code.  I think the
developer owns it and I think he should register the copyright and
propose a written license to the LLC immediately.  If the lLC balks,
the developer should simply tell them that he owns the code and that
they need to prove otherwise and that without a license going forward
they can not use the software.  Based on what you've indicated here, I
do not think they can refute that.

Where is the source code?  Does the developer have it or does the LLC?
 He needs to get the source code back from the LLC before he drops
this bomb on them, otherwise they may prevent him from getting access
to their copy and then he's got no leverage in a licensing situation
without actually suing the LLC for copyright infringement.

The developer has it, physically.  In fact, no other member of the LLC
has seen it or possessed it.  Some have disputed its existence
(thinking that he has overstated his progress and is covering up by
not showing the code).  He refuses to show the code citing that not
doing so works in his favor in the matter of copyright (they cannot
register a copyright without media can they?).  The LLC can make a
case that he has failed his fiduciary duty in this respect and
terminate his interest per the operating agreement.  The developer
does not seem to mind this outcome as his goal remains only copyright.