Do You Actually Own Your IP? Why Founders Are Often Surprised During Due Diligence
It is one of the most jarring moments in any M&A transaction: a buyer’s attorney asks to see IP assignment agreements for the core technology or brand assets, and the seller’s attorney realizes those agreements either do not exist or are incomplete. The company’s most valuable asset—the thing the buyer is most excited to acquire—may not legally belong to the company at all. This scenario is far more common than most business owners realize.
The Gap Between Creating IP and Owning It
In the United States, intellectual property rights—including copyright in software, creative works, and product designs—belong by default to the person who creates them, not the entity that paid for the work or directed it. For employees, the “work for hire” doctrine generally assigns ownership of work created within the scope of employment to the employer, but this rule has important limitations and is not self-executing. For independent contractors, the rule works in the opposite direction: absent a written agreement to the contrary, the contractor owns what they create.
Where Companies Get Into Trouble
The most common IP ownership gaps arise in the earliest days of a company’s life, when founders are focused on building a product rather than on legal formalities. A technical co-founder who later leaves the company may have retained ownership of the code they wrote if no IP assignment agreement was signed. A freelance developer hired to build the original platform may own the software they delivered. A designer who created your logo on a contract basis may hold copyright in it. In each case, the company is using and commercializing IP that it does not legally own—and that problem does not become visible until a buyer’s attorney goes looking for it.
Trademarks and Brand Assets
Beyond software and creative works, brand-related IP deserves scrutiny. Is your company’s name or primary trademark registered with the USPTO? If so, is the registration in the company’s name—or in an individual founder’s name? Is it a state registered trademark? Many early-stage companies have founders who registered a trademark personally and then transferred it informally or not at all. A buyer acquiring a company with an unregistered or improperly owned trademark faces real risk around exclusivity and enforceability.
How to Fix It Before It Becomes a Deal Problem
The solution is straightforward, though the execution requires care. Start with an IP audit: catalog all the intellectual property your business uses and then trace the chain of title for each asset. For any gap identified—software written by a contractor, a design created by a former employee, a trademark registered in the wrong name, you can typically cure the issue through a written IP assignment agreement. Where the original creator is unavailable or unwilling to assign, your attorney can help you assess the risk and determine whether alternative strategies (such as registering new marks or rewriting covered code) are appropriate.
IP ownership is not a technicality. For many companies, it is the foundation of enterprise value. Getting it right before a transaction is not just good legal hygiene—it is the difference between a smooth deal and a difficult one. Schedule an IP audit with your legal counsel now, while you have the time and flexibility to fix what you find. The lawyers at Beresford Booth have extensive experience in business matters and can help you through that process. Contact us at info@beresfordlaw.com or by phone at (425) 776-4100 to see how we can help.