Followup question (if allowed). If your passive income involves software and you're also employed at a software company, how do you deal with the potential legal problems?
Most contracts don't allow for commercial side projects and the company owns anything you create even outside of working hours. Do people just keep quiet and not tell their employer? How risky is it? I know some people who simply don't bother telling their employer (and may or may not pay taxes, too), but I guess you can only do this up to a certain point.
And that rarely holds up in court, especially in California. Some common sense comes into play e.g. if you're building a direct competitor or using their IP, then of course that's going to be an issue.
EDIT: Ownership of copyright in an employee-created "original work of authorship" will depend on the facts. Here are a couple of cases:
CASE 1: (A) The employee-author acted "within the scope of employment" in creating the work, AND (B) the employer and employee do not have an agreement altering ownership. RESULT 1: Under 17 U.S.C. 201(b), the employer owns the copyright in the work. https://www.law.cornell.edu/uscode/text/17/201
CASE 2: (A) Employee-author did not act "within the scope of employment" in creating the work, AND (B) the employer and employee did not have an agreement governing ownership of the work. RESULT 2: Under 17 U.S.C. 201(a), the employee owns the copyright in the work.
Note that calling something a "work made for hire" doesn't automatically make it one — the work must fit into one of nine statutory categories [0], AND the parties must agree, before the work is created, that the work will be a work made for hire.
Is "invention" to be interpreted in a very broad sense here? If I build some cookie cutter CRUD app that nevertheless provides an income, is that an invention?
That goes both ways. They know they'll lose. I've been in this exact situation with an estranged CEO. They send their cease & desist and hope you take it down, but won't go further than that. Sure, you might have a psycho on your hands ready to lose all his time and money, but at that point, you shouldn't have ever taken the job, so moot point.
> Most contracts don't allow for commercial side projects and the company owns anything you create even outside of working hours
Well, they don't. This is an obvious case of common law. An employer is not your slave master. Don't use your employer's resources, and you're fine. Plus, most employers don't want the expense of having to operate a product they have no knowledge of.
In some states, like California, this is explicit. If the employer is in California, I believe that, even if they write this in the contract, it's completely unenforceable. Feel free to cross it out, or sign it. There's no way it'd hold up in court; they can't even argue for it.
I would double check that the company owns anything you create outside of work hours.
At my employer in CA, they don’t claim that. Their only restrictions are that you disclose the nature of any IP you generate on your own time; they will only prevent you from working on it if it conflicts with their business interests or relies on info you could only get working at the company. Which is pretty reasonable imo.
Also, I think those moonlighting clauses are to prevent people from having multiple full time jobs. In practice they won’t care if you work on a prototype for a side project or run a small business, as long as it doesn’t interfere with your regular work.
> Most contracts don't allow for commercial side projects and the company owns anything you create even outside of working hours.
I never understood this. I have friends who were developers at a software company and afraid of doing anything after hours since they felt their company essentially owned them and anything they create, 24/7. I am not a lawyer, but I reckon unless you’re building and/or running your business using company property or company proprietary IP, that section of the contract isn’t worth the paper it’s printed on.
Use your own equipment on your own time and you'll be fine. When I was in University they made us sign a document saying they owned everything.. I was like what? I pay to attend this school, you don't own anything!
> company owns anything you create even outside of working hours
Probably depends on the country you are in. I would never work for a company under those terms. What I program in my free time is my code. Sounds terrible that a company would even try to claim ownership of stuff you do or build in your free time.
Most contracts don't allow for commercial side projects and the company owns anything you create even outside of working hours. Do people just keep quiet and not tell their employer? How risky is it? I know some people who simply don't bother telling their employer (and may or may not pay taxes, too), but I guess you can only do this up to a certain point.