Here’s a scenario that also sounds a little like a Lifetime movie: You formed a photography business with your best friend and made a great team, both taking turns acting as photographer and assistant when needed. You were really equals in everything, covering hundreds of weddings and events since you started. Then, one night, you were going to meet her and her husband for drinks, but she got stuck in traffic so you ended up alone with her husband, and things just…clicked. You didn’t mean to fall in love, but sometimes fate just happens. The divorce was quick, and needless to say, your ex-partner refused your request to photograph your wedding.
So now, unfortunately, your business has to break up. You’ve notified all of your clients that you and your partner are parting ways, and you’ve divided up all the capital and equipment you’ve collected over the years. But what about your copyrights? You still have a number of copyrights with active licenses, from which you still draw income—who gets it? There are also some copyrights over which you’re currently negotiating licenses—who has the authority to agree to those licenses? You offered to work out an amicable agreement with your ex-partner to split the income equally and handle the negotiations jointly, but judging from the look on her face, that is emphatically not an option.
The answer to who owns the copyrights over your mutual oeuvre depends largely on how you chose to structure your business and what operating agreements you had in place. In a best-case scenario, the two of you had an operating agreement that stated that the photographer who took each picture owns the corresponding copyright, and the two of you carefully and coterminously recorded who took each photo. In such a scenario, the person who took the photo owns it, free and clear of any claim the other party might have, and will both receive all income from its exploitation and maintain sole right to license it.
But let’s say you did not have this much foresight. You and your ex-partner incorporated your business into an official limited liability company (LLC) in which both of you were managing partners and equal owners, and your operating agreement states that you will equally divide all income, but it makes no mention of how your copyrights will be divided in the event of dissolution. In this case, we hit some complications. This is because, absent agreements to the contrary, the copyrights that you and your ex-partner created as part of your business probably belong to the business itself. This means several things.
First, it means that whatever income you are receiving from your outstanding licenses must be divided among the members equally as it is received, as required in the dissolution of an LLC, and you must remember to pay off any debts, including outstanding taxes or employee wages, held by the LLC before you distribute assets to the members. This income may also be divided according to their capital contributions, which may be inequal. Dissolution procedures for incorporated businesses differ among the states, so always speak to an attorney when winding up a business. Second, it means that the rights inherent in a copyright will also be divided equally among members (yes, you and your ex-partner will be co-owners of the copyrights in question). And as a quick refresher on copyright co-ownership, remember that two people owning a copyright is much like two people owning a house: Both people can invite guests, both have equal right to access all parts of the house, and both can sell their portion of the house if they want. Similarly, copyright co-owners can both license the entire work or sell their ownership without the other’s permission. Remember that your LLC has licenses in active negotiation—if you dissolve your business, and both you and your ex-partner have equal rights to the copyrights, then either of you could agree to a license on the pictures in question. This is dangerous, especially when there is animosity between co-owners—either owner can undercut the other’s offer. You could offer a license of $10,000 a year and your ex-partner could offer a license for $10 a year, out of pure spite.
If you and your ex-partner had never formally written down an agreement, because you act together in running a business, the law will treat you as one entity, so the partnership itself is likely to own the copyrights to all of the pictures you took together as part of your business (which means that you’ll run into the same problems as if you had formally incorporated).
Bottom line: If you are running a business with a partner that relies on income from intellectual property, make every effort to put yourself in a best-case scenario.