When you work for a company—especially in engineering, R&D, or technology—you might assume that any invention you come up with automatically belongs to your employer. After all, you’re using company equipment, time, and perhaps even direction. But U.S. patent law draws careful lines around ownership, and understanding those boundaries can make the difference between owning your intellectual property or unknowingly giving it away.
In copyright law, the concept of a ‘work prepared’ as a ‘work made for hire’ determines who is considered the legal author and owner of the created work.
Let’s unpack when an inventor keeps control of their patent, and when a company rightfully claims it. The boundaries of ownership can depend on agency law and on whether an employee creates a work during the course of employment, which directly affects who owns the work.
Additionally, the legal author of a created work may differ depending on whether the work was prepared by an employee or under a specific agreement.
“Work-for-Hire” Doesn’t Mean What You Think It Does
Many people are familiar with the phrase “work-for-hire,” especially from copyright law. The so called ‘work-for-hire’ doctrine is often misunderstood because it has, narrow legal meaning. Under copyright law, a true “work made for hire” means that the employer is legally the author from the start. The creator never owns it, even for a moment.
However, patent law works differently. The work-for-hire doctrine applies primarily in copyright law, and the concept of hire work is not automatically recognized in patent law. There’s no automatic “work-for-hire” doctrine in patents. Inventorship and ownership begin with the inventor, not the employer.
That means:
If you invent something, you own it first—even if you did so as an employee—unless you’ve agreed otherwise.
This is a significant distinction that surprises many engineers and scientists.
The Employer’s Rights: “Shop Rights” and Assignments
Although employers don’t automatically own your invention, they may have certain legal rights depending on your employment and the circumstances of your invention. These rights often depend on when the work begins and the nature of the work produced.
a. Assignment Agreements (Contractual Ownership)
Most companies—especially those in technical or R&D intensive industries—require employees to sign an IP assignment agreement upon hire.
This document typically says that any invention:
- Created during employment,
- Related to the company’s business, or
- Developed using company resources
…must be assigned to the company.
If you’ve signed such an agreement, the company becomes the rightful patent owner once you invent something within those parameters.
b. “Shop Rights” (Limited License)
Even without a written agreement, courts have recognized that if an employee invents something using the employer’s tools or resources, or on company time, the employer may obtain a non-exclusive, royalty-free license to use the invention.
This is called a shop right—it doesn’t transfer ownership, still, it allows the company to use the invention without paying the employee inventor.
When the Inventor Keeps Ownership
There are situations where the individual retains ownership, even when employed:
- The invention was made entirely on personal time,
- No company resources were used, and
- The invention is unrelated to the company’s business or research.
In some states, this distinction is protected by law.
For example, California Labor Code § 2870 states that an employer cannot require an employee to assign inventions developed entirely on their own time without using employer resources—unless the invention relates to the company’s business or anticipated R&D.
In plain terms: if you invent something in your garage that has nothing to do with your employer’s work, it’s likely yours—but the details matter greatly.
The Crucial Role of Employment Contracts
Your employment agreement is the controlling factor in most patent ownership disputes. Clear contracts are essential when dealing with non-employees and contractors’ work, as these arrangements require explicit terms to establish ownership and avoid legal uncertainty.
Common clauses to look for include:
- Present assignment clauses: “I hereby assign all rights to inventions…” (immediate transfer)
- Future assignment clauses: “I agree to assign…” (transfer occurs later)
- Disclosure obligations: requiring you to report all inventions made during employment
- Scope definitions: clarifying what counts as “related to company business”
Establishing a proper hire relationship and addressing tax withholding obligations are crucial for both employees and contractors to ensure compliance and clarify rights over any contractor’s work or inventions created by non-employees.
If your agreement includes a broad assignment clause, even inventions made at home could fall under your employer’s claim—especially if they relate to your job duties or the company’s industry.
Contractors, Consultants, and Startups
For independent contractors, the default rule is the opposite of employees: They typically own what they create—unless the contract says otherwise.
Work-for-hire arrangements with contractors must meet the above criteria set out in copyright law, including being specially ordered or commissioned and falling within one of nine categories, such as collective works, supplementary works, instructional texts, answer materials, computer programs, and sound recordings. The hire provision in copyright law has historically affected the classification of sound recordings and artists rights. Written agreements should address termination rights and the ability to terminate assignments, especially for works that are specially ordered or commissioned. Collective works and supplementary work are among the types of works that can be included in work-for-hire arrangements.
That’s why companies must include IP assignment clauses in consulting or development agreements. Without them, the contractor retains ownership of any patentable inventions.
For startups, this distinction is critical. Founders often work on ideas before officially forming the company. Unless they formally assign those inventions to the new entity, the individual retains ownership, which can complicate investor due diligence later.
Key Differences in Intellectual Property Ownership
When it comes to intellectual property rights, understanding the key differences between works made for hire and works created by independent contractors is essential for both businesses and creators. Under copyright law, a work made for hire is a special category where the hiring party—often the employer—automatically owns the copyright in the work, rather than the individual who actually created it. This typically applies to works prepared by employees within the scope of their employment, meaning the employer automatically owns the copyright from the moment the work is created, unless a written agreement states otherwise.
For independent contractors, however, the general rule is quite different. Independent contractors retain ownership of the works they create unless there is a written agreement—specifically, a written instrument signed by both parties—stating that the work is a “work made for hire.” Even then, the work must fall within one of nine statutory categories defined by the Copyright Act, such as a contribution to a collective work, a motion picture or other audiovisual work, a translation, or certain other specified types. Only if the work fits into these statutory categories and the parties expressly agree in writing can the hiring party claim full ownership under the work-for-hire doctrine.
The Supreme Court has made it clear that works created by independent contractors cannot be considered works made for hire unless they meet these strict criteria. This means that, regardless of the value or importance of the work to the hiring party, the independent contractor will retain ownership of the intellectual property unless a proper work-for-hire agreement is in place and the work falls within the statutory categories.
Another important distinction involves tax obligations. Employees have taxes withheld by their employer, while independent contractors are responsible for their own tax payments, including self-employment taxes. Businesses must issue the appropriate tax forms, such as Form 1099-NEC, to independent contractors. Misclassifying employees as independent contractors can result in significant penalties and back taxes for the hiring party.
To ensure that intellectual property rights are properly secured, businesses should use clear work-for-hire agreements that specify when a work is a “work made for hire” and confirm that the hiring party will retain ownership. For works created by independent contractors, it is crucial to have a written agreement stating the work’s status and, if necessary, to include a copyright transfer agreement to guarantee full ownership. Supplementary agreements, such as confidentiality clauses, can further protect sensitive information and prevent unauthorized disclosure. Registering copyrights for works created under these agreements can also strengthen legal protection and help resolve disputes over ownership.
By understanding the key differences between works made for hire and works created by independent contractors, and by using precise written agreements, businesses can retain ownership of valuable intellectual property and avoid costly legal disputes. This knowledge is vital for anyone engaging creative talent, whether for a collective work, a motion picture, or any other copyrightable project.
Best Practices: Protecting Yourself (or Your Company)
If you’re an employee or inventor:
- Review your employment or contractor agreement carefully.
- Keep clear records of when, where, and how inventions are developed.
- Avoid using company tools or time for personal projects.
- If you’re in California or a similar state, understand your statutory rights.
If you’re an employer or startup founder:
- Make sure all employees and contractors sign clear IP assignment agreements.
- Revisit contracts periodically as roles evolve.
- Require prompt disclosure of inventions to avoid later ownership disputes.
The Bottom Line
In patent law, inventorship always begins with the inventor, not the company. Ownership only shifts through contractual assignment or operation of law.
If you’re developing something innovative—especially outside your regular job duties—it’s worth talking to a patent attorney early. A short consultation could help you avoid a costly misunderstanding later.
Looking to Protect Your Intellectual Property?
Please contact Arlen Olsen at Schmeiser, Olsen & Watts LLP at aolsen@iplawusa.com.
About the Author
Mr. Olsen, a former adjunct professor of intellectual property law, has over 30 years of experience in all aspects of intellectual property law. Mr. Olsen is a founding Partner of Schmeiser, Olsen & Watts LLP and a former United States Patent Examiner. Mr. Olsen has prosecuted numerous patents that have been litigated and received damages of over 60 million dollars. Additional activities include teaching seminars, appearing as a guest lecturer on intellectual property matters for corporations and educational institutions, and evaluating and consulting with clients regarding the scope, enforcement, and protection of intellectual property rights.
