Cautionary Tale of Website Co-Ownership–Mikhlyn v. Bove

By Eric Goldman

Mikhlyn v. Bove, 2008 WL 4610304 (E.D.N.Y. Oct. 15, 2008). The Justia page.

In my Co-Blogging Law article, I discussed the potentially ugly legal consequences of “blog divorces” when co-bloggers fall out of love with each other and start fighting. I wrote:

Whether a limited liability entity or a private agreement is the better choice depends on the bloggers’ specific circumstances and goals. However, either choice is preferable to co-bloggers doing nothing proactive to override the default rules.

When I wrote the article in 2005, I didn’t have any dramatic examples of how bloggers got screwed by the default rules, nor I was able to say with confidence exactly how a judge would resolve a blog divorce. I still don’t know the latter, but if I were writing the article today, I would discuss Mikhlyn v. Bove as the cautionary tale. The case involves an e-commerce website divorce that involves cousins, embroidery, alleged drug use, a scramble for website passwords, and the current denouement, a hailstorm of litigation (with both groups suing each other for about a dozen causes of action each) that will surely cost each side more than the business was ever worth. If you are a co-blogger or a co-operator of a website and you don’t have a documented exit strategy, take note!

(Please note that the parties contest just about every fact, so my recitation of what happened is based on the court’s opinion as best as I could read it, and I’ve omitted a lot. You have to read the whole opinion if you want the complete story).

This case reinforces the maxim that you should never do business with family members. The case involves Israeli neighbors Ana and Polina (Group 1), who in 2002 established an e-commerce business selling embroidery designs through eBay and their website. The business ultimately expanded to include embroidery supplies in addition to designs. Over time, Ana’s cousin-in-law Inga and cousin Vadim, both from Brooklyn, got involved in the business (Group 2). Group 1 says they hired Group 2 as employees; Group 2 says that Groups 1 and 2 were all partners in the venture. Uh oh.

It sounds like business did well financially for a while. Then the relationships turned south in 2007 and into 2008. Ana relocated from Israel and moved in with Inga and Vadim, but they allege Ana started abusing drugs and scaring the kids, which may have prompted them to kick Ana out of the house. Starting in Spring 2008, the parties brought in the lawyers, thus commencing the formal legal fight over the venture’s assets. And it turns out there were a fair number of assets to fight over, including several websites under the “ABC” brand (including domain names and the website design/text–Ana obtained a (contested, of course) copyright registration for the latter), an eBay storefront, a registered trademark in “ThreaDelight” (held in the name of all four parties), embroidery designs by Ana (but no copyright registrations in them), and various trademark rights in the name “Anna Bove” (note 2 “N”s instead of 1).

Ana brought an unsuccessful UDRP to get the ABC-based domain names. However, because co-defendant Polina was the listed owner for some of the domain names, Ana was able to assume technical control over those domain names. Doing so apparently split the technological empire, such that Group 2 is running certain websites and Ana or Group 1 is running other websites. This is an unstable allocation of the business, so in August, Group 2 sued Group 1, which prompted counterclaims from Group 1.

What a mess. WHAT A MESS!

Just how messy is it? Check out how the court resolves the partnership v. employees dispute at the core of the lawsuit. The court says that Groups 1 and 2 were neither partners nor employer-employee. OK…so what were they? I don’t know, and the court doesn’t seem to know either, but it hypothesizes–without concluding–that the parties may co-own certain copyrights and trademarks of the venture. As I explain in my Co-Blogging article, IP co-ownership can come with numerous unexpected pitfalls, so I suspect no one is happy with the co-ownership resolution. Ugh.

Ana also tried to stop Group 2 from using her name (the modified “Anna Bove” mark) as part of their business. The court rejects the effort, saying that both groups have been using the Anna Bove mark in parallel with each other for a number of years, and thus Ana’s claim is barred by acquiescence or laches. Accordingly, it looks like Ana has effectively lost control over her own name because Group 2 can continue to operate an “Anna Bove” business that she can’t stop or restrict. Double ugh.

As should be obvious, the current resolution is complex, ugly and unsatisfying to everyone. The good news is that the parties are going to mediation. Maybe they can do some horse-trading and find a mutually improved outcome than the one the court’s opinion leaves them in. If mediation doesn’t work out, I could see the groups being locked in a death struggle where no one other than the lawyers emerges with anything of value.

I’m sure the parties wish they could go back in time and make a nice, clean agreement documenting their relationship that would avoid all of this heartache. If you are a co-blogger or co-operator of a website without such an arrangement, what are waiting for?