Frankly, there are no easy answers here. The best course of action would be to reach agreement with your partner on dissolution. It seems some work has been done and that the work has value, so it may be worth paying for some rights to it. But if the work has not been properly documented, it may be useless to your next programmer.
Nevertheless, it may just be better to pay your partner something in exchange for the clear right to use all developments. You probably want to make it clear that they cannot use the IP you are paying for, and of course this agreement should be in writing. Under the circumstances you would also be well advised to seek counsel to draft that agreement. However, a few rules might guide you in deciding what would be a fair deal. It seems unlikely that you explicitly gave up any rights to the original work, but depending on the investment they made, they may have some equities going in their favor. Your nondisclosure agreement may have provisions that help you in this area. Typically such provisions deal with ownership of the underlying technology.
In addition, your e-mails back and forth may evidence your agreement and together define the terms of that relationship. Ideas they suggested could be problematic. However the nondisclosure agreement may help here also. Depending on the equities, the same might apply to ideas you suggested and ideas you jointly developed. However, the subsequent course of the relationship can always vary the nondisclosure agreement. If you cannot come to an agreement on dissolution, they may claim that the only way for them to recoup their investment is to release the code. If they did that, however, they would probably be obligated to share this with you. Of course this depends on what the evidence shows are the terms of your agreement. So overall, try to work it out, as it looks like they are amenable to resolving the issue. On the other hand, if you can't work it out, you'd be well advised to start fresh with a programmer who never even saw anything done by the old programmer and designer.
Answered on Apr 26th, 2011 at 8:54 AM