Contractor vs. Employee: Who Owns the IP?

A startup pays a freelance developer $60,000 to build its app. Two years later, an acquirer’s diligence team asks for the IP assignment. There isn’t one. Under U.S. copyright law, that developer — not the company that paid every invoice — owns the code, and the deal is suddenly renegotiating itself. Whether the person creating your independent contractor intellectual property is a W-2 employee or a 1099 freelancer changes the ownership default completely, and most businesses discover this at the worst possible moment. This guide explains both defaults, how courts decide who counts as an employee, what a client actually gets without paperwork, and the checklists that prevent the problem. It’s part of our pillar on who owns what you create at work.

The flipped defaults, in one table

The economic logic feels backwards — “I paid for it, I own it” — but copyright ownership vests in the author, and 17 U.S.C. § 201(b) reassigns authorship to the employer only for true employees acting within the scope of employment. Everyone else keeps what they make until they sign it away in writing (17 U.S.C. § 204(a) requires a signed writing for any transfer).

Who counts as an “employee”? The CCNV v. Reid factors

You don’t get to choose the label after the fact. In Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989), the Supreme Court held that “employee” in the work-made-for-hire definition means employee under general common-law agency principles, and listed the factors courts weigh:

• The hiring party’s right to control the manner and means of creation
• The skill required for the work
• The source of tools and instrumentalities and the location of the work
• The duration of the relationship and whether the hiring party can assign additional projects
• The hired party’s discretion over when and how long to work
• The method of payment (salary vs. per-project)
• The hired party’s role in hiring assistants
• Whether the work is part of the hiring party’s regular business
• Employee benefits and tax treatment (courts often weigh these heavily — no W-2, no benefits, no withholding strongly suggests contractor)

Reid himself — a sculptor commissioned to create a nativity-scene sculpture — was held to be an independent contractor despite the nonprofit’s creative direction, so CCNV didn’t own the copyright. The practical takeaway: your bookkeeping already made this decision. If you 1099 someone, don’t expect a court to call them an employee for copyright purposes. For how courts have applied these ownership rules in real disputes, browse the copyright case-law archive.

The nine-category limit on commissioned works for hire

There is a second path to work-made-for-hire status for contractors, and it’s narrower than most contracts assume. Under 17 U.S.C. § 101, a specially ordered or commissioned work is a work made for hire only if both conditions hold:

1. It falls within one of nine categories: 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, or an atlas; and
2. The parties expressly agree in a written instrument signed by both that it’s a work made for hire.

Notice what’s missing from the list: software, logos, photographs, websites, marketing copy, product designs. Stamping “work made for hire” on a freelance dev contract doesn’t make the code a work for hire — the category requirement fails, and the clause can be a nullity. (In California there’s an extra trap: designating someone a work-for-hire author can trigger statutory employment obligations for the client under the Labor Code and Unemployment Insurance Code.) The fix is boring and universal: pair the WFH language with a present-tense express assignment — “Contractor hereby assigns all right, title, and interest…” — so ownership transfers even when WFH status fails. The full doctrine, categories, and drafting mechanics are covered in work made for hire, explained.

What the client actually gets without paperwork: the implied license

No assignment doesn’t mean no rights at all. Courts routinely find that a contractor who creates work at a client’s request and hands it over, expecting the client to use it, has granted a nonexclusive implied license. That saves the client from infringement liability for the contemplated use — but it’s a thin blanket:

• Scope is defined by conduct, so every edge case is arguable: Can the client modify the code? Use the logo on new product lines? Sublicense to an affiliate? Keep using the work after a payment dispute?
• Nonexclusive means nonexclusive. The contractor can reuse components, templates, and even substantially similar work for your competitor.
• No registration, no enforcement. Only the owner (or exclusive licensee) can register the copyright and sue infringers. A company with an implied license can watch a knockoff and be unable to act.
• It can torch a financing or sale. Diligence teams treat “we have an implied license to our own core product” as a red-alert finding — see IP assignment gaps for how these holes surface and get patched, sometimes at ransom prices.

The classic small-business version of this fight is the freelance logo: the designer owns the mark’s copyright while the client builds a brand on it. We walk that exact scenario, with fixes, in who owns a logo made by a freelancer.

Patents: contractors own their inventions, full stop

Patent law has no work-made-for-hire doctrine at all. Rights vest in the human inventor, employee or not, and transfer only by assignment. For employees, standard invention-assignment agreements (plus fallback doctrines like hired-to-invent and shop rights) usually get the employer to ownership. For contractors, there is no fallback: a consulting engineer who invents a mechanism while building your prototype owns that invention unless the consulting agreement assigned it. At most, the paying client may earn a shop right — a nontransferable ability to use the invention in its own business — which is worthless the day the company tries to license, enforce, or sell the patent. Any statement of work where invention is plausible needs “hereby assigns” language covering inventions conceived or reduced to practice in performing the work.

Trade secrets shared with contractors

Contractors also flip the confidentiality picture. An employee owes an implied duty of confidentiality; a contractor’s duties are largely what the contract says. Handing a freelancer your codebase, pricing model, or customer data without an NDA and confidentiality obligations can undermine the legal status of those secrets — trade secret protection requires reasonable measures to maintain secrecy, and unprotected disclosures to outsiders are Exhibit A that you didn’t take them. Before any contractor touches sensitive material, run through the reasonable secrecy measures checklist: NDA signed first, access limited to what the engagement needs, marking and return-or-destroy obligations, offboarding that actually revokes access.

The agency and dev-shop layering problem

Hiring an agency instead of a solo freelancer doesn’t solve the problem — it stacks it. Your contract is with the agency, but the work is performed by the agency’s employees and, very often, the agency’s own subcontractors. The chain of title only reaches you if every link holds:

1. Subcontractor → agency: Does the agency have signed assignments from every freelancer it used on your project? (Its subcontractors are contractors too — the same flipped default applies.)
2. Agency employees → agency: In-scope employee work is the agency’s automatically, but “scope” matters for moonlighting staff.
3. Agency → you: Does your MSA actually assign ownership on payment, or just license the deliverables?

Ask for all three in writing. A warranty that the agency “owns or has rights to” everything it delivers, plus an obligation to obtain assignments from its personnel, belongs in every dev-shop MSA. Open-source components deserve a disclosure schedule of their own — and if outside contributors touch your proprietary code, contributor license agreements are the parallel fix.

International contractors: WFH may not exist where they live

The freelance economy is global; the work-made-for-hire doctrine mostly isn’t. Two recurring issues:

• No WFH doctrine. In many civil-law countries, authorship belongs inescapably to the human creator, and ownership must be transferred by contract under local formalities. A U.S.-style WFH recital may be meaningless in the contractor’s home country, where a dispute might actually be litigated.
• Moral rights. Many jurisdictions grant authors rights of attribution and integrity that are inalienable — they can’t be assigned, only (sometimes) waived. A French or German developer may retain the right to object to modifications of their work even after a full assignment.

The standard drafting response: an express assignment effective worldwide, a WFH designation to the extent recognized, a moral-rights waiver to the maximum extent permitted by law, plus a covenant to execute further documents, and a broad irrevocable license as the belt-and-suspenders fallback where local law blocks transfer.

Checklists: hiring companies and freelancers

If you’re hiring contractors:

1. Signed agreement before work starts — retroactive assignments are possible but leverage shifts badly.
2. Present-tense assignment (“hereby assigns”) of copyrights, inventions, and all other IP in the deliverables, plus WFH language as a supplement, never a substitute.
3. Moral-rights waiver and further-assurances clause.
4. NDA and secrecy measures before sharing confidential material.
5. For agencies: chain-of-title warranties and subcontractor-assignment obligations.
6. Payment-tied ownership language handled carefully — you want ownership to be clean once you’ve paid, and the contract to say exactly when that happens.

If you’re the freelancer: the flipped default is your leverage — spend it deliberately. Price full assignments higher than licenses; consider assigning the deliverable while retaining your pre-existing tools and libraries (with a license to the client); condition the assignment’s effectiveness on full payment, so an unpaid invoice leaves you owning the work; and keep your portfolio rights in writing rather than by assumption.

The bottom line

Employment status is the fork in the road: employees’ in-scope creative work belongs to the employer automatically, while contractors own everything they make until a signed writing says otherwise — and “we paid for it” changes nothing. The commissioned-work path to work-made-for-hire status covers only nine categories that exclude most modern deliverables, so the reliable instrument is an express present-tense assignment, layered with WFH language, moral-rights waivers, and chain-of-title warranties when agencies or international freelancers are involved. Get the paperwork signed before the first line of code or the first sketch; it’s a paragraph now and a lawsuit later.

This article is general legal information for educational purposes only. It is not legal advice, does not create an attorney-client relationship, and may not reflect the most current law in your area. Contractor and work-made-for-hire ownership disputes turn on specific facts. For advice about your situation, consult an attorney licensed in your jurisdiction.