IP Assignment, PIIAs, and Work for Hire: How Startups Make Sure They Own Their IP

How does a startup make sure it owns its IP?

A startup secures its IP by having every person who creates technology for it sign a written agreement that assigns their rights to the company. Founders sign a technology assignment, employees sign a proprietary information and inventions assignment agreement (PIIA), and contractors sign an agreement with a present assignment of work product.

Ownership does not follow payment automatically. Under US copyright law, the person who writes code is generally its author unless the work qualifies as a work made for hire, and patent rights in an invention start with the individual inventor. A company that pays for development without the right paperwork may end up with, at most, an implied license rather than ownership.

The fix is straightforward when it is done early. The same fix can be difficult when a founder has left, a contractor cannot be located, or a dispute has already started.

What does work made for hire mean under copyright law?

Under 17 U.S.C. section 101, a work made for hire is either a work prepared by an employee within the scope of employment, or a specially commissioned work that falls into one of nine statutory categories and is covered by a written agreement signed by both parties.

When a work is made for hire, the employer or commissioning party is treated as the author and owner from the start. The nine categories for commissioned works are a contribution to a collective work, part of a motion picture or other audiovisual work, a translation, a supplementary work, a compilation, an instructional text, a test, answer material for a test, and an atlas.

The US Copyright Office explains that whether someone is an employee for this purpose depends on general agency law factors, such as the hiring party’s right to control the manner and means of the work, not simply on what the contract calls the relationship.

Who owns code written by a contractor?

Absent a written assignment, an independent contractor who writes software generally owns the copyright, because most software does not fit any of the nine commissioned-work categories. The hiring company may receive only a license implied from the circumstances.

That is why contractor agreements typically say the work is made for hire “to the extent permitted by law” and then add a backup assignment of all rights that do not qualify. Copyright transfers must be in a writing signed by the person transferring the rights, so a handshake or an invoice is not enough.

Labels can also have side effects. In California, for example, state statutes connect a work-for-hire designation in a contract with an individual to employment status for certain purposes, which is one reason many agreements with individual contractors rely primarily on an assignment.

• Assign all deliverables and related IP, not just “the final product.”
• Require disclosure of third-party and open source components before they are included.
• Cover subcontractors, who must assign to the contractor or directly to the company.
• Include cooperation and further-assurance duties for future filings.

Why does “hereby assigns” language matter?

Present assignment language, such as “hereby assigns,” can transfer rights automatically as inventions and works are created. A promise that a person “agrees to assign” may be treated as only a promise to assign in the future, which can leave title with the individual.

Federal courts have drawn this distinction in patent ownership disputes, including cases where a later agreement using present assignment language with a different company prevailed over an earlier promise to assign. Well-drafted PIIAs and contractor agreements use present assignment language for future inventions, and many also include a power of attorney so the company can complete filings if the individual is unavailable.

Patent assignments can also be recorded with the USPTO. Recording helps put third parties on notice of the company’s ownership.

What is a PIIA, and what should it include?

A proprietary information and inventions assignment agreement, or PIIA, combines confidentiality obligations with an assignment of inventions and works an employee creates within the scope of the relationship. It is sometimes called a CIIAA or simply an invention assignment agreement.

Employees should sign a PIIA when they start, as a condition of employment. Asking a current employee to sign later raises questions about consideration and enforceability that vary by state.

• Confidentiality of the company’s proprietary information during and after employment.
• Present assignment of inventions, works of authorship, and related IP.
• A schedule where the employee lists prior inventions excluded from the assignment.
• Any notice required by state law, such as the California section 2870 notice.
• Return of company property and information at the end of employment.
• Cooperation with patent and copyright filings, plus a limited power of attorney.

How does California Labor Code section 2870 limit invention assignment?

Section 2870 makes an invention assignment provision unenforceable for inventions an employee develops entirely on their own time without the employer’s equipment, supplies, facilities, or trade secrets, unless the invention relates to the employer’s business or research or results from work for the employer.

California also requires employers to give written notice of this limitation when an employment agreement includes an invention assignment, and PIIAs used with California employees typically attach the text of section 2870. Several other states, including Washington, Illinois, and Minnesota, have comparable statutes. State law varies, so the PIIA should be checked for each state where employees work.

What about founders and work done before the company existed?

Founders should assign to the company any technology, code, domain names, and other IP they created for the business before incorporation, usually through a technology assignment signed at formation alongside their stock purchase agreement.

Pre-formation work is a common gap. Founders often build a prototype for months before forming an entity, sometimes while employed elsewhere. If a founder’s prior employer has a claim to that work under its own PIIA, a later assignment to the startup may not resolve it, so that risk should be evaluated early. Prior inventions a founder intends to keep should be listed and, where the company needs them, licensed on clear terms.

Moral rights and open source deserve a brief check as well. Some foreign jurisdictions recognize moral rights that cannot be fully assigned, so agreements with international contributors often include a waiver or consent to the extent permitted. Open source code remains subject to its own license, so an assignment cannot transfer rights the contributor never had.

How does IP ownership affect financing and acquisition diligence?

Investors and acquirers typically ask for signed assignments from every founder, employee, and contractor who contributed to core technology. Missing or defective agreements can delay a closing, require confirmatory assignments, or reduce the value of the deal.

• Keep a log of every contributor, their role, dates, and the signed agreement.
• Audit contractor and agency agreements for present assignment language.
• Obtain confirmatory assignments while former contributors are still reachable.
• Maintain an inventory of open source components and their licenses.