Property, intangible

a blog about ownership of intellectual property rights and its licensing

Remember the Details

This case demonstrates why you follow up to make sure tasks get completed. Sometimes it’s the little details that get you …

Vincent Heck is the sole member of plaintiff Clarity Software LLC, a company that distributes software. Heck wrote the original software, owned a couple of companies and licensed the software to those companies for distribution. Heck ran into financial trouble, owing money to Eric Wallace with the debt secured by the copyright in the software. In August, 2003, Wallace formed Clarity Software LLC and Heck contributed the ownership of the copyright in the software to the company to settle the debt.

A few months later, Heck filed for personal bankruptcy. He didn’t schedule the software and his bankruptcy was discharged in November 2004. In 2008, Heck bought Clarity Software from Wallace and became the sole member. The present lawsuit was for infringement of the copyright in the software.

So the little detail that was missed? There was no Clarity Software LLC actually formed in 2003, or more specifically there wasn’t enough evidence of the formation to overcome summary judgment. Here’s some excellent briefing by the defendant, listing all the things that had to have gone wrong for there to be no record of the formation:

1. The unnamed attorney [hired by Wallace] prepared and actually sent the certificate of organization to the Pennsylvania Department of State.
2. The Pennsylvania Department of State received, accepted and filed the certificate of organization.
3. The Pennsylvania Department of State notified the attorney and/or Wallace of its acceptance of the certificate of organization, sent a copy to Wallace and/or his attorney,
4. The Pennsylvania Department of State then lost the certificate of organization, along with all records of the submission and filing of the certificate of organization (e.g., the entire physical file and electronic database record for Clarity Software, LLC).
5. Wallace subsequently provided the certificate of organization to PNC Bank when he opened Clarity Software, LLC’s bank account, but PNC lost it, even though PNC Bank still has the signature card that was completed when the account was opened.
6. Wallace, the former President of the Pennsylvania Institute of Certified Public Accountants, lost his copy of the certificate of organization and all records of his communications with his attorney and the Department of State.
7. Everyone else associated with Clarity Software, LLC[ ] lost the certificate of organization and all contemporaneous records.

The court entered summary judgment that in 2003 there wasn’t any de jure Clarity Software for Heck to have contributed the software to. Clarity Software (finally properly formed in 2012) made the argument that there was a de facto limited liability company then, but the court concluded that the statute defining de facto entities applied only to corporations, not limited liability companies, and, even if the statute did apply, Clarity Software didn’t meet the legal standard to be a de facto company.

Since Heck could not have assigned the software to Clarity Software, he still owned it at the time he filed for bankruptcy. And, since he didn’t schedule it (why would he, he didn’t think he owned it), the discharge of the bankruptcy did not abandon the software back to Heck and it was still owned by the trustee. And the case was dismissed for lack of standing.

Clarity Software, LLC v. Financial Independence Group, LLC, No. 2:12-cv-1609-MRH (W.D. Pa. Sept. 30, 2014).

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