24 January, 2013

Understanding joint ownership of conserved and non-conserved entities

Here is a sharp distinction in definitions that I've found in my professional world. This pertains to the concept of "joint ownership" of something.

I have collaborated with several companies and usually when it comes to this issue of joint ownership of the fruits of collaboration, things get messy.

By one definition of joint ownership, which I have predominantly seen coming from MNC companies is that, if two parties jointly own some entity, then neither of them can use the entity without the permission of the other. And for this reason the companies are keen to buy off full ownership of the entity from collaborators.

On the other hand, I have seen this alternate definition of joint ownership, predominantly coming from local companies -- especially startups. This says that, if two parties jointly own some entity, they are both empowered to use it in whatever way they want and does not need the other's permission for anything.

This disparity in definitions was intriguing and I tried to understand the source of this disparity. And here is what I've realized.

The former definition of joint ownership (that were in use primarily in the MNCs that I've interacted with) was developed by lawyers in the brick-and-mortar era where the object of ownership was predominantly a material entity. For instance, companies jointly owned an airplane or a warehouse or an estate, and such things. The property of material entities is that their usage is a conserved operation -- or a "zero sum" game. That is, if I jointly own a car with my friend, my usage of the car will hamper his usage of the car at the same time. So, we need to co-ordinate our activities and inform one another of our plans to use the jointly owned entity. Not doing so, is clearly crude and impolite.

But the second definition of joint ownership has been conceived in a completely different environment. All of the local startups that I have interacted with, are software companies. The thing with software is that it is not a material entity -- it is an information entity. And the property of information is that it is a non-conserved entity. If I give a piece of material to someone, I won't have the material with me anymore; but if I give a piece of information to someone, both of us will have the information. Same is the case with software. If two of us jointly develop a piece of software, we can both own it completely. Its usage by one of the parties will not hamper its usage by the other parties. So, there is no point asking for permission from the other parties, to use something that is wholly owned by you.

Established legal practices are seldom changed because each change brings with it enormous unknown implications which need to be understood. So it is quite rational for an established MNC to just use existing practices without having to go through reinventing legal modalities for information entities. But for a startup that is primarily working in the information space, the most natural thing to do is to adopt the newer definition of joint ownership.

There is another angle why companies insist on explicit permission. They are worried that one of the collaborators may use the entity in a way that adversely affects the businesses of the other collaborators. But this can be addressed by a non-compete usage agreement for software entities. It is not necessary to pose a hurdle in the form of explicit permission for every usage.

This is one clear case of change in rules between the erstwhile brick-and-mortar businesses and the information era businesses. Who knows how many more such paradigms are being fundamentally altered?