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Startup Law 101 Series – Key Legal Rules For Who Owns the IP Relating to Your Startup

As a founder, you need to understand work-for-hire. Why? Because it determines who owns key IP in your startup.

Copyright laws protect creative works, including IP that you develop. When you develop IP for others, the work-for-hire idea affects who owns it.

How does it work?

Here are some guidelines:

1. You develop IP for your startup as its employee — the IP belongs to your employer. Pretty basic. This is a classic work for hire.

There are gray areas but, if you create IP while doing employment duties for which you are paid, there is no ambiguity. All IP relating to such work automatically belongs to your employer, whether or not you signed any agreement relating to it.

2. You develop IP for your startup as a consultant and are paid for that work, but have no agreement in place relating to the IP rights — it might surprise you to learn that the IP here would belong to you and not to your startup.

Why? Because the default rule under copyright is that the creator of a work owns the copyright unless (a) it is done as a work for hire or (b) it is expressly assigned under a contract to the other party.

Contractor work is a work for hire only if there is a contract identifying it as such and, in addition, the work falls within certain specified categories of types of work that qualify as works made for hire.

No contract, no work for hire.

No contract, no assignment.

Thus, with no contract specifying that it is a work for hire and with no assignment, the default rule kicks in to provide that you own the copyright to the IP you created even if you were paid for your work.

3. You develop IP for your startup as a contractor and are paid and have a work-for-hire agreement that contains no express assignment provisions in it — again, perhaps surprisingly, you still would own that IP if it involved a software development effort.

Why? Because software development does not fall within the specified categories that would allow it to qualify as a work made for hire in the contractor situation.

Thus, to ensure that IP rights to software TheBusinessDaily.org are transferred from the contractor to the startup, you will routinely find language in work-for-hire agreements that says, in effect, “this is a work made for hire but, just in case it isn’t, the contractor agrees to assign all IP rights anyway.”

4. Which brings us logically to our last case, that of the contractor who develops IP for a startup, gets paid, and does the work under a work-for-hire agreement that characterizes the work as one made for hire and that assigns all IP rights to the startup — in that case, the startup owns the IP rights free and clear and you retain no rights to the IP.

How might these guidelines play out in practice for you as a founder?

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