Who Owns the IP Your Employees and Contractors Create?

If you never signed an IP assignment with a contractor, there is a good chance the contractor still owns the copyright in whatever they delivered. Founders discover this during a financing or an acquisition, when the buyer’s counsel asks for the chain of title and finds a logo drawn by a freelancer, an app built by an agency, and a product name first used by a co-founder’s earlier LLC. Who owns IP created by employees and contractors depends on the type of asset and on what was signed, and the default rules are less generous to the company than most people assume. Our intellectual property law practice spends a surprising share of its time repairing ownership records that a one-page agreement would have prevented.

Copyright: employees usually, contractors rarely

Copyright attaches to code, designs, text, photographs, and video the moment the work is fixed in a tangible form. Under the Copyright Act, a work an employee prepares within the scope of employment is a work made for hire, and the employer is treated as the author from the first keystroke. No document is needed for that result, although a written job description helps when the argument is about something built on a personal laptop after hours.

Contractors are a different story. A freelancer, a design agency, or an offshore development shop is not an employee. Their output is a work made for hire only if it falls into one of nine statutory categories (a contribution to a collective work, part of a motion picture, a translation, a compilation, and a few others) and both parties signed a written agreement saying so. Most software, logos, websites, and marketing copy do not fit those categories. Without a signed assignment, the contractor keeps the copyright and the company holds, at best, an implied license to use the deliverable for the purpose it was commissioned. An implied license can be narrow, is usually non-exclusive, and is awkward to sell or sublicense. The mechanics are covered in our post on work made for hire versus copyright assignment.

Inventions: hired to invent, or not

Patent rights begin with the inventor, never with the employer. An employee hired specifically to solve a problem or design a product is generally obligated to assign the resulting invention, and courts enforce that obligation even without a contract. An employee hired for general duties who invents something on the side owns it. The employer may get a shop right, which is a non-exclusive, non-transferable license, if the employee used company time, equipment, or materials, but a shop right cannot be sold and does not stop the employee from licensing competitors.

Because those default rules are fact-specific, companies that care about patents put a present-tense assignment in every offer letter and contractor agreement. The wording matters. “I hereby assign” transfers rights automatically when the invention comes into existence. “I agree to assign” is only a promise, and a later signed assignment to someone else can defeat it. Several states also limit how far an employer may reach into inventions made entirely on the employee’s own time without company resources, so the clause should carve those out where the statute requires.

Trademarks: whoever uses the mark in commerce

Trademark ownership does not follow authorship. The designer who draws a logo owns the copyright in the artwork, but the business that uses the logo to sell goods or services owns the trademark rights. Problems appear when a founder filed the USPTO application in their own name, or when a predecessor entity used the brand first. The entity that will operate the business should be the applicant on every trademark filing, and any earlier owner should assign the mark together with its goodwill. An assignment of a mark without the goodwill it represents can be void, which is a trap for founders moving a brand between entities.

Founders and work done before incorporation

The most common gap is founder IP. Code written before the company existed belongs to the person who wrote it. If three co-founders each built a piece of the product and one later leaves on bad terms, the departed founder can assert rights in the core code and block a sale. The fix is a founder IP assignment, signed at formation, transferring everything related to the business to the company, typically in exchange for founder shares. It belongs in the same stack as the operating agreement or bylaws listed in our post on documents required to set up a company.

Trade secrets and confidential information

Trade secret rights belong to whoever controls the information and takes reasonable measures to keep it secret. If the employees and contractors who develop a confidential process are not bound by written confidentiality obligations, the company cannot show the reasonable measures the Defend Trade Secrets Act requires, and the information may lose protection entirely. Confidentiality is a separate clause from assignment and should appear alongside it in every employment and contractor agreement.

How to close the gaps

The paperwork is short, and most of it is signed once:

• A founder IP assignment signed at formation.
• An employee confidential information and invention assignment agreement with present-tense assignment language, signed before work starts.
• A contractor agreement with a work-made-for-hire clause for the categories where it works, a backup assignment for everything else, a waiver of moral rights, and a confidentiality clause.
• Trademark applications filed in the operating entity’s name, and assignments recorded with the USPTO whenever a mark changes hands.
• Copyright assignments for key registered works recorded with the Copyright Office, which gives constructive notice to later purchasers.

If an agreement was never signed, a confirmatory assignment can usually cure the gap after the fact, provided the person is reachable and willing. If they are not, the options narrow to a negotiated buyout, an implied license argument, or a rewrite of the affected work. Our contract drafting and review team prepares and audits these documents so the question never reaches a buyer’s diligence list.

If you are unsure who owns a key asset in your company, a consultation with Capitol Law Partners can map the chain of title and the fixes available. 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 intellectual property law page or schedule a consultation.