Who owns the software in this case?

Question

Consider three parties, whose intent was to create an LLC (or some other legal entity) where each would have a 1/3 interest in the business. No legal entity was ever formed, and nothing was ever signed. For some time, one of the people spent considerable time researching and developing some copyrighted material (software) for the prospective business. The other two people were not involved in that work.

By mutual consent it was decided that the arrangement wasn't going to work and the parties decided to split up.

In this scenario, who owns the copyright on the software? The individual who wrote it, or all 3 individuals who intended to collaborate (in equal shares)?

Answer 1

Canada

In Canada, "the author of a work shall be the first owner of the copyright therein" (Copyright Act § 13(1)).

Also, "[w]here the author of a work was in the employment of some other person under a contract of service or apprenticeship and the work was made in the course of his employment by that person, the person by whom the author was employed shall, in the absence of any agreement to the contrary, be the first owner of the copyright" (Copyright Act § 13(3)).

Nothing in your description of the situation describes to me an employer/employee relationship, so in my opinion, § 13(3) is not implicated.

Even if there were an agreement or contract to transfer copyright to an LLC or assign it to the other individuals, absent an actual writen assignment, the original owner still owns the copyright. "[N]o assignment or grant is valid unless it is in writing signed by the owner of the right..." (Copyright Act § 13(4)).

In University of London Press Ltd v University Tutorial Press Ltd, there was a contract that required assignment of copyright. "The examiner was the first owner, and he has not assigned the copyright in writing signed by him or his agent. The copyright therefore remains in the examiners, subject to the obligation under the contract of employment to assign it to the University or as it may direct." Even though copyright was owed to the University, it didn't become theirs until the written assignment took place.

United States

Similarly, in the US, "Copyright in a work protected under this title vests initially in the author or authors of the work.", and "in the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author" (17 U.S.C § 201).

"A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner's duly authorized agent." (17 U.S.C § 204)

Conclusion

In both Canada and the US, transfer of copyright requires an affirmative act (a written, signed document, or a note or memorandum, etc.)

Since nothing in your description indicates that the author has prepared a signed, written, instrument of conveyance or note or memorandum of the transfer of copyright, the copyright still belongs to the original author.

Answer 2

You don't give a jurisdiction but I know LLC is a US abbreviation.

No corporation was ever formed, no contract was signed so the question becomes: did a partnership come into existence?

Based on this it would appear that the answer is probably not. At this point there has not been "joint administration and control of business operation". But this depends on state jurisdiction and the particulars of the case.

If that is the case then copyright in the software would be owned by the individual who created it.