The default rule: whoever creates it owns it
Under U.S. law, copyright in software belongs to the person who wrote it, and an invention belongs to the inventor, unless ownership has been transferred. Work created by an employee within the scope of employment is a work made for hire that belongs to the employer, but that rule does not reach founders working before a company exists, contractors, or most work done outside the job. Transfers must be in writing, and the wording matters: an agreement that says the person "hereby assigns" present and future inventions transfers them automatically, while one that says the person "agrees to assign" has been held to be only a promise, leaving title with the individual until a further document is signed. The company's diligence file should show an unbroken chain from each creator to the company.
Work done before incorporation
Almost every startup begins as work on a laptop before any company exists. That prototype, the domain name, the social-media handles, the early design files and any provisional patent application belong to the founders personally until assigned. The standard fix is a technology assignment agreement signed at formation, in which each founder transfers listed assets to the company in exchange for founder stock, with a schedule that actually lists what is being transferred. Vague assignments of "all intellectual property related to the business" are better than nothing, but a specific schedule is what an acquirer's counsel will want to see.
Prior employers and universities
The most serious ownership problems come from a founder's previous job. Employment agreements commonly assign inventions conceived during employment, and some reach work related to the employer's business even if done at home. California and Washington limit such clauses to inventions developed using the employer's resources or relating to its business, but the limits are narrower than founders assume, and a founder who built the prototype on a company laptop or during working hours may have handed it to the former employer. University researchers face institutional IP policies and, for federally funded research, the Bayh-Dole framework, under which the university typically holds title. The time to read these agreements is before founding; the remedies afterward are a release, a license or a negotiated buyout, each of which is easier while the former employer is still friendly.
Employees, contractors and advisors
Every employee should sign a confidential information and invention assignment agreement at the start, with a present assignment and a carve-out that complies with state law. Contractors need their own agreement: their work is not work made for hire by default, so without a written assignment the contractor owns the code the company paid for. The agreement should also license back any pre-existing tools the contractor used. Advisors who contribute ideas should sign the same kind of assignment. For contractors outside the United States, the assignment should be drafted to be valid under local law, which may limit transfers of moral rights or require specific formalities; a Delaware-law assignment signed by an engineer in another country is not always enough.
Open-source and AI-generated code
Open-source licenses are enforceable contracts. Permissive licenses such as MIT, BSD and Apache require little beyond notice; copyleft licenses such as the GPL can require the company to release its own source code if the licensed code is combined and distributed, and the AGPL extends that obligation to software offered over a network. A single AGPL component in a SaaS product is a diligence finding that can delay a financing. Keep an inventory of third-party components and their licenses, adopt a written policy on what engineers may use, and run a scan before any financing or sale. Code produced with AI coding tools raises unsettled questions about copyright and about the terms of the tool; keep records of human authorship and review the tool's license before it writes anything proprietary.
Protecting what the company owns
Ownership is the first step; protection is the second. Trade secrets require reasonable measures to keep them secret—access controls, confidentiality agreements, exit procedures—or they stop being trade secrets. Patentable inventions should be evaluated before public disclosure; the United States allows a one-year grace period after an inventor's own disclosure, but most other countries do not, so a conference talk can forfeit foreign rights. Product names should be cleared and registered as trademarks before launch. And the company should maintain an IP schedule—patents, applications, registrations, domains, licenses in and out, and every assignment—because the first question in any diligence is "show me the chain of title", and the answer should take minutes, not weeks.
References
How Lumen Law & Co. can help
IP ownership problems almost always surface in financing or acquisition diligence. We help companies build a complete chain of title before then.
- Review founders' agreements with prior employers or universities, assess potential claims to existing work, and negotiate releases or licenses.
- Draft the technology assignment at formation and the confidentiality and invention-assignment agreements for employees, contractors and advisors, including versions for people outside the United States.
- Review open-source components and their licenses, set an internal use policy, and arrange a compliance scan before a financing or sale.
- Advise on trade-secret measures, patent timing and trademark clearance for product names, and maintain an IP schedule ready for diligence.