Why Ownership Doesn’t Happen Automatically

Contrary to common assumption, the company does not automatically own inventions made by employees or contractors, even if it paid for the work.

Under U.S. law:

• Employees may be presumed to assign certain rights under the “hired to invent” doctrine—but only in limited cases and subject to the specifics of the employment relationship.
• Contractors retain full ownership of anything they create unless there is a written assignment provision that transfers rights to the company.

This means that without clear, executed agreements in place, founders, former developers, outside engineers, and even friends who contributed in the early days may retain IP rights that can’t be revoked.

Key risk: Absent a signed assignment, the default legal owner of the IP is the individual who conceived or created it—not the startup.

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Employees vs. Contractors: Why It Matters for IP

Understanding the distinction between employees and independent contractors is essential—not just for tax or HR compliance, but for IP ownership.

• Employees are generally subject to company policies and IP assignment provisions within their employment agreement. Their IP contributions can be more easily captured through “present assignment” language that transfers rights automatically upon creation.
• Contractors, by contrast, operate outside the scope of typical employment law protections. Their default rights to their own work product remain intact unless explicitly reassigned in a written contract.

Many startups incorrectly assume that paying a contractor through a 1099 or issuing equity ensures the company owns the deliverables. It does not. A well-drafted contractor agreement must include:

• An express assignment of IP created during the engagement
• A present-tense assignment (e.g., “hereby assigns”) rather than a promise to assign later
• An obligation to assist in executing documents or prosecuting patents, even after the engagement ends

The same principle applies to outsourced firms, agencies, and freelance developers—without a signed agreement assigning all rights to the company, you may not own the code, designs, or inventions you’re building your business on.

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Founders, Advisors, Interns, and Others on the Margins

It’s not just formal hires or vendors who can create IP risk. In many startups, early contributions come from:

• Co-founders who later leave
• Friends or advisors who helped develop a prototype or algorithm
• Interns or students who wrote code or conducted experiments

These individuals often begin their work informally—before an entity is formed or before any contracts are in place. If not properly papered afterward, they may retain residual rights that surface years later in litigation or diligence.

Even if someone is no longer involved with the company, a missing assignment from the early days can block enforcement of a patent, complicate a funding round, or reduce acquisition value.

Founders should revisit early contributors and, wherever possible, execute backdated IP assignment agreements to ensure clean title.

Key takeaway: If someone made a material contribution to your technology, you need written confirmation that the company owns it—regardless of their role or status at the time.

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Drafting Effective IP Assignment Provisions

IP assignment clauses are not boilerplate. The difference between a weak and strong clause can be the difference between enforceable ownership and a costly dispute. Effective assignment provisions should:

• Use present-tense language: “hereby assigns” (not just “agrees to assign”)
• Include all IP created during the engagement, even if not patentable or filed
• Require cooperation with patent prosecution, filing of declarations, and documentation post-employment
• Include a duty to disclose inventions to the company, even if the employee or contractor is unsure of their value

These provisions should be part of a broader IP and confidentiality agreement, ideally signed as a condition of engagement or onboarding.

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Investor and Diligence Expectations

Investors and acquirers expect the company to own all relevant IP outright—free and clear of third-party claims. Missing or incomplete assignments can derail funding rounds or trigger indemnity demands in acquisition agreements.

Startups should be prepared to:

• Present a complete, signed set of assignment agreements for all inventors, developers, and contributors
• Show that all IP created under contractor agreements is fully assigned
• Provide representations that no one outside the company retains rights to key inventions, codebases, or trade secrets

Cleaning up these documents after the fact is possible, but can be expensive and awkward—especially if the individual has moved on, is uncooperative, or is now represented by counsel.

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Final Thought

Owning your IP doesn’t just mean having your name on a patent. It means having the legal right to use, enforce, and commercialize your innovation—without needing anyone’s permission.

At Schmeiser Olsen, we help startups build strong IP foundations by ensuring that ownership is secure from day one. If you’re bringing on new hires, working with outside developers, or cleaning up early contributions, we can help put the right agreements in place—and prevent problems before they arise.

For help reviewing or drafting employment and contractor IP agreements, contact our team here.