# IP Assignment Gaps That Kill Deals > IP assignment gaps scare off investors — contractor-owned code, missing founder assignments, and how to fix chain-of-title problems before you raise. Guide | Author: Lidiia Levitska | Source: Intellectual Property Law (outsideipcounsel.com) Canonical: https://outsideipcounsel.com/guides/ip-assignment-gaps/

Quick answer: IP assignment gaps are breaks in a startup's chain of title — the people who wrote the code, designed the logo, or invented the technology never signed a written agreement transferring ownership to the company. Under U.S. default rules, contractors own what they create, and patents vest in the individual inventor, so without a signed present-tense assignment the company doesn't actually own its core IP. These gaps are the single most common problem investors and acquirers find in due diligence, and they can delay, reprice, or kill a deal. You fix them with confirmatory assignments and IP transfer agreements — ideally before diligence ever starts.

Nothing spooks an investor faster than discovering that the company they're about to fund doesn't clearly own its own product. This guide explains where IP ownership actually lives by default, how assignment gaps surface in diligence, and how to close them before they cost you the round. ## What is an IP assignment gap? An **IP assignment gap** is a hole in your company's **chain of title** — the documented path proving that every person who created intellectual property the business depends on legally transferred that ownership to the company. When a link is missing, the company may only have an implied license to use the work, or no rights at all, while the actual owner is a former contractor, a co-founder who left, or an employee who never signed the right paperwork. Gaps matter because IP is often the *only* meaningful asset a startup has. If you can't prove you own your source code, your brand, or your patents, a Series A investor's counsel will flag it, an acquirer will hold back purchase price, and in the worst case a disgruntled creator can hold your product hostage. This is why assignment hygiene sits at the center of any [IP audit before you raise](/guides/ip-audit-before-you-raise/) and any serious [IP diligence for fundraising and M&A](/guides/ip-diligence-for-fundraising-and-ma/). ## Who owns IP by default — and why that's the problem? Most founders assume that if the company paid for the work, the company owns it. That assumption is wrong often enough to be dangerous. Ownership depends on *who created it* and *what kind of IP it is*: - **Independent contractors own what they create.** Copyright vests in the author the moment a work is fixed ([17 U.S.C. § 201](https://www.law.cornell.edu/uscode/text/17/201)), and a contractor is the author of their own code, designs, and content. Paying an invoice does not transfer copyright. - **Employees are cleaner — but not automatic for patents.** Work an employee creates *within the scope of employment* is generally a "work made for hire" for copyright purposes, so the employer owns it. But **patent rights vest in the individual inventor** regardless of employment; only a written assignment moves them to the company. - **Founders often create IP before the company exists.** Pre-incorporation code, prototypes, and designs belong to the founder personally until assigned to the entity — a step founders routinely forget in the rush to ship. The pattern is consistent: **the default rule usually favors the creator, not the company.** That's the trap. We go deeper on the general framework in [who owns startup IP](/guides/who-owns-startup-ip/). ## Are employee assignments actually safe? Employees are cleaner than contractors, but "cleaner" is not "bulletproof." Three gaps recur even in companies that believe their employee IP is locked down: - **Scope creep.** The work-made-for-hire rule only captures work created *within the scope of employment*. A backend engineer who builds a side feature at home, on a personal laptop, on a topic unrelated to their role may fall outside the default — which is why you still want an explicit assignment covering everything created during employment that relates to the business. - **Patents always need a signed assignment.** Even a full-time W-2 employee-inventor owns their patent rights until they assign them in writing. An employment offer letter that mentions IP in passing, without present-tense assignment language, leaves patents unassigned. - **No signed agreement at all.** Fast-growing teams hire before paperwork is ready, and early employees sometimes never sign the invention-assignment agreement. Those are silent gaps until diligence exposes them. Some states, notably California under [Labor Code § 2870](https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=LAB§ionNum=2870), **limit** how much of an employee's own-time, own-resources inventions an employer can claim. A compliant agreement carves those out — an overbroad one can be challenged. The takeaway: don't assume the employment relationship alone gives you ownership. A signed **Confidential Information and Invention Assignment Agreement** does. ## Does a contractor own the code they wrote for you? Yes — unless they signed it away. This is the most common and most damaging gap in early-stage companies, because so much early product work is done by freelance developers, offshore dev shops, and design agencies. The reason is the **work-made-for-hire limitation for contractors.** Under [17 U.S.C. § 101](https://www.law.cornell.edu/uscode/text/17/101), a work by an independent contractor is a "work made for hire" *only if* two conditions are met: (1) the parties sign a written agreement expressly saying so, **and** (2) the work falls into one of **nine narrow statutory categories** (contributions to a collective work, part of an audiovisual work, a translation, a supplementary work, a compilation, an instructional text, a test, answer material for a test, or an atlas). **Ordinary software source code fits none of those categories.** So a "work for hire" label on a contractor agreement is often legally meaningless for code. The fix is not the label — it's a **present-tense assignment**: language where the contractor "hereby assigns" all right, title, and interest to the company. Logos and brand assets from freelancers raise the identical problem; see [who owns a logo a freelancer made](/guides/who-owns-logo-freelancer/) for the design-specific version. Offshore development shops and overseas manufacturers add a second layer of risk. A contract governed by another country's law may not enforce a U.S.-style assignment the way you expect, and some jurisdictions recognize inalienable "moral rights" or default ownership rules that a boilerplate clause won't override. If any part of your product was built or tooled abroad, treat the assignment language as a starting point, not a guarantee — the practicalities are covered in [protecting IP when manufacturing overseas](/guides/protecting-ip-when-manufacturing-overseas/). The same discipline applies to the confidentiality side of these relationships: your NDA and your assignment should be signed together, and our guide to [an NDA that holds up](/guides/nda-that-holds-up/) explains why the assignment, not the confidentiality clause, is what actually gives you ownership. ## Why "hereby assigns" beats "agrees to assign" This sounds like lawyer pedantry, but a single verb tense has decided ownership fights. The distinction traces to the Federal Circuit's decision in *FilmTec Corp. v. Allied-Signal* (1991) and was central to *Board of Trustees of Stanford University v. Roche Molecular Systems*, which the U.S. Supreme Court decided in 2011: because one agreement said "hereby assign" and an earlier one only said "agree to assign," the "hereby assign" language won and carried title. The exact phrasing of an assignment can control whether ownership transfers automatically or only creates a promise to transfer later. - **"Hereby assigns"** is a **present assignment** — it transfers ownership the instant the IP is created, with no further paperwork needed. - **"Agrees to assign"** or "will assign" is only a **promise of a future assignment** — it leaves legal title with the creator until a *separate* document is signed, and if that person disappears or refuses, you have a lawsuit instead of an asset. Every founder, employee, and contractor agreement should use present-tense assignment language, plus a **further-assurances clause** and a **power of attorney** letting the company execute assignment documents if the creator won't. These are cheap to include upfront and painful to fix later. ## How do assignment gaps surface in due diligence? Investors and acquirers hunt for these gaps systematically. In a financing or acquisition, the buy-side counsel will typically request: - **A cap table of IP:** every founder, employee, and contractor who touched the product, and the signed agreement covering each. - **Proof of a present-tense assignment** in each employment and contractor agreement (not just a confidentiality or "work for hire" clause). - **Founder IP transfer agreements** showing pre-incorporation work was assigned to the entity. - **Patent assignment records** recorded with the USPTO, and copyright ownership for key works. - **Open-source and third-party dependencies** that could contaminate ownership or trigger license obligations. When counsel finds a missing signature or a "will assign" clause, it goes into the **disclosure schedule** as a risk, and it can trigger a **purchase-price holdback**, an **indemnity**, a **closing condition** requiring you to fix it first, or — in a hot deal — a walk-away. The whole process is laid out in our guide to [IP diligence for fundraising and M&A](/guides/ip-diligence-for-fundraising-and-ma/), and the disputes that flow from bad chain of title fill our [trade secrets case archive](/topics/trade-secrets/). ## How do you fix an assignment gap? The good news: most gaps are curable if you act before — or early in — a deal. The main tools: 1. **Confirmatory assignment.** A short agreement in which the creator confirms that they previously assigned, and to remove any doubt "hereby assign," all IP to the company, ideally made **effective as of** the original engagement date. This is the workhorse fix for a contractor or employee who signed a weak (or no) assignment. 2. **Founder IP / technology transfer agreement.** Signed at or shortly after incorporation, this transfers everything each founder created before the company existed into the entity. If you missed it at formation, do it now. 3. **Record patent assignments with the USPTO.** For patents and applications, record the executed assignment with the Patent Office so the chain of title is public and clean. Recording within three months protects priority against later purchasers. 4. **Address open-source and third-party IP.** Document licenses, remove or replace problematic dependencies, and confirm nothing copyleft has infected proprietary code. Speed and leverage matter. A creator who signs a confirmatory assignment as a routine housekeeping matter is easy; the *same* person, contacted during a live acquisition once they realize they hold something you need, may ask to be paid. **Fix gaps while no money is on the table.** One caution on retroactivity: an assignment can be made *effective as of* an earlier date between the two parties, but it does not rewrite history against third parties who acquired rights in the meantime. If a former contractor already licensed the same code to someone else, or filed their own patent on a shared invention, a later confirmatory assignment may not fully cure the problem. That is exactly why prevention beats remediation, and why a founding team should run through a [startup IP checklist](/guides/startup-ip-checklist/) before it ever writes a line of shippable code. ## What clauses prevent gaps in the first place? Prevention is far cheaper than remediation. Bake these into your templates from day one: - **Present-tense assignment of all IP** ("hereby assigns") in every employee, founder, advisor, and contractor agreement, signed *before* work begins. - **A work-made-for-hire clause as a backstop** to the assignment (belt and suspenders — the assignment does the heavy lifting, especially for patents). - **Further assurances and power of attorney** so the company can perfect and record assignments even if a person becomes unavailable. - **Confidentiality / trade-secret obligations** paired with the assignment (a separate but adjacent protection). - **A Confidential Information and Invention Assignment Agreement (CIIAA)** for every hire — the standard startup instrument that combines assignment, confidentiality, and prior-inventions disclosure. - **Contractor agreements that assign, not just license,** with no reserved rights in deliverables. Run these through the broader framework in [who owns startup IP](/guides/who-owns-startup-ip/), and audit your existing stack against them in an [IP audit before you raise](/guides/ip-audit-before-you-raise/). ## The bottom line IP assignment gaps are the number-one IP problem startups hit in diligence, and they trace back to one misunderstanding: **paying for work does not mean you own it.** By default, contractors own their creations, patents vest in the individual inventor, and pre-incorporation founder work stays with the founder — until a *present-tense written assignment* moves it to the company. Get "hereby assigns" language into every agreement before work starts, sweep up any historical gaps with confirmatory assignments and a founder IP transfer, and record patent assignments with the USPTO. Do it now, on your schedule, and you turn a deal-killer into a non-issue when investors come looking. *This guide is general education, not legal advice, and does not create an attorney-client relationship. Chain-of-title and assignment issues turn on your specific agreements and your state's law — consult an attorney licensed in your jurisdiction before relying on or curing an assignment.* ## Frequently asked questions ### What is an IP assignment gap? An IP assignment gap is a break in a company's chain of title — someone who created code, designs, or inventions the company relies on never signed a written assignment transferring ownership to the company. Under U.S. default rules, independent contractors own what they create, and patent rights vest in the individual inventor, so without a signed assignment the company only has an implied license (or nothing) rather than clean ownership. Gaps are the number-one problem investors and acquirers flag in diligence. ### Do independent contractors own the code they write for you? Yes, by default. Unless a contractor signs a written agreement assigning IP to your company, the contractor owns the copyright in the code, logos, or content they create — the 'work made for hire' rule almost never applies to independent contractors, because their work rarely fits the nine statutory categories in 17 U.S.C. § 101. Paying an invoice does not transfer ownership. You need a present-tense written assignment ('hereby assigns') signed by the contractor. ### How do you fix a missing IP assignment? Get a confirmatory assignment: a written agreement in which the creator confirms they assigned, and hereby assign, all IP to the company, ideally retroactive to the original engagement. For founders, use a technology or IP transfer agreement at incorporation. For patents, record the assignment with the USPTO. Fix gaps before diligence starts — remediating during a live deal is slower, costlier, and gives the other side leverage on price and terms. ### Does a work-made-for-hire clause transfer all IP? No. Work made for hire only covers copyright, and for contractors only if the work fits one of nine narrow statutory categories and both parties sign an agreement saying so. It does nothing for patents, which must be assigned by the inventor regardless of employment. That is why well-drafted agreements pair a work-made-for-hire clause with a present-tense assignment of all IP as a backstop — the assignment does the real work.