Who Owns Your Company's IP? Chain of Title Explained

The default rule of U.S. copyright law is that the person who creates a work owns it. Not the company that paid for it, unless that person was an employee acting within the scope of the job or signed a written assignment. The default rule for a trademark is that the entity using the mark in commerce owns it, which is often a founder’s sole proprietorship from before incorporation rather than the corporation that exists today. IP chain of title is the paper trail that overrides those defaults and proves the company holds what it believes it holds. Our IP portfolio and ownership records work finds a break in that chain in a large share of the companies we review, and the break is almost always fixable if it is found before a buyer or an opponent finds it.

Why IP chain of title breaks

The usual causes are mundane. A freelance designer created the logo under a two-line email agreement that said nothing about ownership. An outside development shop wrote the first version of the software under a statement of work with no assignment clause. The founder filed the trademark application in her own name before the LLC existed and never transferred it. The company converted from an LLC to a corporation, or changed its name, and the USPTO records still show the old entity. A co-founder who left took the domain registration with him because it was on his personal registrar account.

None of these feels like a legal problem at the time. Each becomes one at the first financing, acquisition or lawsuit.

Copyright: employees, contractors and the writing requirement

A work made by an employee within the scope of employment belongs to the employer automatically. A work made by an independent contractor does not, with a narrow exception: a specially commissioned work can be a work made for hire only if it falls into one of nine categories listed in the Copyright Act, such as a contribution to a collective work or part of an audiovisual work, and the parties signed a written agreement saying so. Software and logos are generally not on that list. So the company needs an assignment.

An assignment of copyright must be in writing and signed by the owner. Wording matters: an agreement in which the contractor “hereby assigns” the work transfers title now, while one in which the contractor “agrees to assign” is a promise that may require a second document later. Contractor agreements should also cover pre-existing materials the contractor incorporates, which the contractor will usually keep and license rather than assign. Registration with the Copyright Office is separate from ownership, but a registration in the wrong name invites challenge; our copyright registration team corrects those records.

Trademarks: goodwill and the intent-to-use trap

A trademark assignment must be in writing and must transfer the goodwill of the business connected with the mark. An assignment of the bare mark, with no goodwill, is called an assignment in gross and can be held invalid, leaving the assignee with nothing and potentially breaking continuity of use. The fix is simple drafting: the assignment recites that it includes the goodwill symbolized by the mark.

Intent-to-use applications carry a specific restriction. An application filed under Section 1(b) cannot be assigned before the applicant files an allegation of use, except to a successor to the applicant’s ongoing business to which the mark pertains. A founder who files an intent-to-use application personally and then assigns it to a newly formed company before use may have voided the application. Timing and the structure of the transfer need to be checked before any such assignment is signed.

Recording a trademark assignment with the USPTO is not required for validity between the parties, but an unrecorded assignment is void against a later purchaser for value without notice unless it is recorded within three months of its date or before the later purchase. Recording also keeps the owner of record correct, which matters because a Section 8 declaration filed by the wrong owner is void, a point we expand on in when a Section 8 declaration is due.

Trade secrets and the employment agreement

Trade secrets have no registry, so ownership rests entirely on agreements and conduct. Employment agreements and offer letters should include confidentiality obligations and an assignment of inventions and works created in the course of employment, subject to any state-law limits on assignments of inventions made entirely on the employee’s own time. Contractor agreements need the same terms. Without them, a departing engineer’s claim to a process he developed is a dispute rather than a question with a clear answer.

Recording and updating ownership records

Each registry has its own recordation process: the USPTO Assignment Recordation Branch for trademarks, the Copyright Office for copyright transfers, WIPO for Madrid Protocol registrations, and each foreign office for national registrations. Name changes, mergers and conversions should be recorded as well as assignments, so that the owner of record always matches the entity that will sign the next maintenance filing. Domain registrations should be moved to a company-controlled registrar account with the company as registrant. When a company restructures, the IP transfer belongs on the closing checklist next to the bank accounts; our business formation and structuring group coordinates that step.

Fixing a broken chain

If the audit described in how to conduct an IP audit turns up a gap, the usual cure is a confirmatory assignment: a short written document in which the original owner confirms the transfer, often with language making it effective as of the original date. Former contractors and founders will typically sign one when asked, sometimes for a nominal payment. The difficulty arises when the counterparty is gone, defunct or hostile. Then the options narrow to a declaratory judgment action, a negotiated purchase, or in the case of software, a rewrite. The earlier the gap is found, the cheaper the fix.

For companies starting out, the preventive checklist is short: IP assignment agreements from every founder at formation, assignment and confidentiality terms in every offer letter and contractor agreement, trademark applications filed in the company’s name from the first filing, and a license with quality control terms whenever another entity uses the mark, which we cover in what a trademark license agreement should include.

If you are unsure whether your company actually owns its brand, its code or its content, Capitol Law Partners can trace the chain of title and prepare the assignments and recordations that close the gaps. Schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by this communication.

Attorney Cagatay Ersoy. Practical strategy for founders, investors, and growing companies.

Need help with this topic? See our IP ownership and portfolio management page or schedule a consultation.