The IP assignment clause founders get wrong in contractor agreements

Here is a conversation that happens in diligence more often than anyone would like. An acquirer's counsel asks who owns the code. The founder says the contractor agreement says it's work made for hire. Counsel reads the agreement, and then asks whether anyone can still reach the contractor who wrote the payments module in 2023.

The problem is that in the United States, calling something a work made for hire does not, on its own, make it one.

Why "work made for hire" usually isn't enough

Under US copyright law, a work made for hire arises in two situations. The first is a work prepared by an employee within the scope of employment — which generally does work, and is why employee-created code is usually less of a problem.

The second is a specially ordered or commissioned work, and it only qualifies if two conditions are met: the parties sign a written agreement saying so, and the work falls within one of nine enumerated categories in 17 U.S.C. § 101 — contributions 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.

Software is not on that list. Neither is most design work.

So a contractor agreement that says "all deliverables shall be works made for hire" and stops there may have transferred nothing at all, because the deliverable was never eligible to be one.

The fix is not to remove the work-for-hire language — it can still apply to whatever genuinely qualifies. The fix is to follow it with a present assignment that catches everything else.

"Hereby assigns" versus "agrees to assign"

The second failure is subtler and comes down to verb tense.

• "Contractor hereby assigns to Company all right, title and interest…" — this operates as a present transfer at signature. Rights in future works vest in the company as they are created.
• "Contractor agrees to assign to Company…" — this is a promise to assign later. It creates a contractual obligation, but the rights stay with the contractor until a further document is signed.

The gap between those two is not theoretical. In Board of Trustees of Leland Stanford Junior University v. Roche Molecular Systems (2011), the US Supreme Court addressed competing agreements where one used "agree to assign" and a later one used "hereby assign" — and the present-tense assignment prevailed. An "agrees to assign" clause leaves a window in which someone else's present assignment can take priority.

What to look for: present-tense assignment language covering all right, title and interest in the deliverables, including all intellectual property rights in them, effective on creation.

The four clauses that make an assignment stick

A workable IP section in a contractor agreement has four parts. Missing any one of them tends to produce a specific, predictable problem.

1. The present assignment

Covers deliverables and everything created in the course of performing the services, with the work-for-hire language retained for whatever qualifies and the present assignment catching the rest.

2. Background IP carve-out and licence

Contractors arrive with things they already own: internal libraries, tooling, boilerplate, prior templates. A clause assigning everything they touch to you is one a good contractor won't sign, and one a careless contractor will sign while continuing to reuse the same library for the next client — which means you own something they're re-licensing, and neither of you knows it.

The clean structure is: the contractor retains background IP, assigns the deliverables, and grants you a perpetual, irrevocable, worldwide, royalty-free licence to any background IP embedded in the deliverables, to the extent needed to use, modify, and distribute them.

Without this licence you can own the deliverable and still be unable to use it without infringing.

3. Further assurances

Assignments sometimes need paperwork later — patent filings, copyright registrations, chain-of-title documents for a due diligence request in four years. A further-assurances clause obliges the contractor to sign what's needed, at your expense.

Because contractors move on and stop answering email, this clause is usually backed by a limited power of attorney allowing the company to execute such documents on the contractor's behalf if they cannot reasonably be reached. That is the clause that saves the diligence conversation at the top of this article.

4. Moral rights

Moral rights — attribution and integrity — are separate from economic copyright and, in many jurisdictions, cannot be assigned at all. What is usually available is a waiver, or an agreement not to assert them, to the extent permitted by applicable law.

This matters most for design, copywriting, video, and anything else you will modify heavily after delivery.

Third-party and open-source components

Assignment language transfers what the contractor owns. It does not transfer what the contractor didn't own in the first place.

Add a warranty that the deliverables are the contractor's original work, don't infringe third-party rights, and — this is the operational one — a requirement to disclose all third-party and open-source components with their licences, plus a prohibition on incorporating copyleft-licensed code without prior written consent.

An unnoticed copyleft dependency in a deliverable you now own is a problem that surfaces at exactly the wrong moment, and it is far cheaper to catch at contract stage than at diligence.

Employees are a different question

If you're adapting a contractor template for employees, note that some jurisdictions limit how far an invention-assignment clause can reach. In California, for example, Labor Code § 2870 restricts assignment of inventions developed entirely on the employee's own time without company equipment or trade secrets, and unrelated to the company's business — and § 2872 requires that employees be given written notice of that limitation. Several other US states have comparable statutes with their own wording.

An employee assignment clause drafted without regard to the applicable state statute can be unenforceable in part. That's a lawyer question rather than a template question.

A five-point check

Run this over any contractor, agency, or freelancer agreement before signing:

1. Does it use present-tense assignment language, not "agrees to assign"?
2. Is background IP carved out and licensed to you where embedded in deliverables?
3. Is there a further-assurances clause, ideally with a power of attorney?
4. Are moral rights waived to the extent legally permitted?
5. Is there an originality and non-infringement warranty, plus open-source disclosure obligations?

If the answer to any of them is no, that's a redline — and it's one contractors accept routinely, because none of it changes what they're paid.

Related reading

The same present-assignment issue turns up in NDAs signed before a pilot; see NDA red flags, item 6. For where IP sits in a full first-pass review, see how to review a contract without a lawyer.

A disclaimer

This describes drafting patterns in US-governed contractor agreements and is not legal advice; it creates no lawyer–client relationship. Copyright ownership, the assignability of moral rights, and the limits on invention-assignment clauses vary substantially between jurisdictions, and the US authorities cited here may not apply to your agreement at all. If ownership of something important is unclear, that is a question for a lawyer now rather than during diligence later.