IP Ownership Chain Integrity
Does Your Company own its Code/IP?
Founders, securing airtight proof of intellectual property ownership is the single most critical step in protecting the venture's underlying value and commercial defensibility. And it should be done as early as inception.
Because a company's code, designs, and patents form the foundation of its enterprise valuation, investors and acquirers demand clear chain-of-title documentation before deploying capital.
Failing to secure signed Confidential Information and Invention Assignment Agreements (CIIAAs) or Proprietary Information and Invention Assignment Agreements (PIIAAs) from every founder, employee, and contractor leaves the entity's core IP legally stranded with the individual creators.
This dynamic introduces immense legal risk during due diligence, as a disgruntled former developer could easily leverage an unassigned line of code to derail a transaction or claim partial ownership of the enterprise.
Ultimately, these unhedged IP leaks present a fatal title defect that routinely causes institutional VCs to walk away from venture rounds and halts strategic acquisitions dead in their tracks.
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Transcript:
Lindsey Mignano:
One of the questions we routinely get asked, especially when we're dealing with multi-founder teams or people who are relatively close to incorporation, and maybe this is their first time doing a startup, is the question about engineers and the ownership of the IP that they create for the company, specifically the code, which is the backbone of a lot of companies. Most founders sometimes think they own the what they create for their company, but give us a weigh-in here.
Phil Omorogbe:
You're right, Lindsey — a lot of founders come in thinking that they own everything, and this is their first assumption, and it's not usually the case automatically. So I want you to think about your IP like title to a house. So investors and acquirers, they want an unbroken chain proving the company owns every piece of product. And the two gaps that we typically see come in this form.
The first is with contractors. A lot of founders assume that if they paid for the code, they automatically own it. And for software, that's just not how U.S. copyright law works. The default rule is whoever writes the code is the owner, unless they've signed it over to you in writing. So if you have that overseas dev shop or freelancer who built it, if there's no written assignment, and this is what we call the Confidential Information and Invention Assignment Agreement. If you don't have the CIIAA signed, then it's possible that your company may not own the code. Instead, the contractor who wrote it does.
And one more thing: to an investor, an unsigned contractor is clouded title. They really don't like this. So it quietly suggests you don't actually own the thing you're selling. And this is one thing we advise every founder who's working with a contractor, employee, et cetera: you need to make sure that this is signed.
Lindsey Mignano:
What if you're a startup, and maybe you incorporated online and you hired some independent contractors here and overseas, but you never got them to sign this important document, they weren't a part of incorporation. What's the fix here?
Phil Omorogbe:
The fix is we will draft this CIIAA for them and just have them sign everything that they've made with the company, up until this date. This doesn't necessarily mean that if they've built things before you get them to sign, it can't be covered; we can retroactively add this into the CIIAA. So what I would say is definitely get in contact with your lawyer. This is definitely a situation you want to fix sooner rather than later.
Lindsey Mignano:
Awesome, thanks so much. if you have any questions, feel free to comment.
AI-Generated Code and the Copyleft Trap: What Founders Need to Know Before They Raise
Founders: Your AI coding assistant might be quietly creating an open-source problem for your startup.
We're seeing this come up more and more with founders — often at the worst possible time: due diligence.
Here's the issue. Some AI coding models are trained on large datasets that include public code repositories. AI-generated code can sometimes resemble or reproduce open-source code, including code subject to copyleft licenses.
That's where things can get complicated. Certain copyleft licenses can impose source-code disclosure and other obligations when software incorporating covered code is distributed. If that code makes its way into your proprietary product without being identified and handled appropriately, you could have a license-compliance and IP diligence problem on your hands.
And that's exactly the kind of issue you don't want an investor's diligence team discovering three weeks before your round closes.
The good news: this is preventable. Here are three things every founder should have in place:
Automated open-source license scanning in your development pipeline — ideally tied to an SBOM — so you know what third-party code and dependencies are actually in your stack.
A written AI coding and open-source policy — backed by appropriate employee and contractor agreements addressing third-party code, IP ownership, confidentiality, and compliance with company policies.
An open-source/IP audit before you raise. Know what's in your codebase before an investor's counsel finds it for you.
If you're building with AI coding tools, it's worth asking a simple question now: Do you actually know where your code came from?
Better to find out before the data room opens.
Transcript:
Lindsey S. Mignano:
Alright, so here's another question that we kind of get more often these days with regard to clients who are coming to us and maybe they're using AI to generate some software code. What is a copyleft license? Can you give us an idea of what that would entail and how to contextualize this for early stage startups?
Phil Omorogbe:
Yes, definitely. And this a lot of the times, unfortunately, comes up in due diligence review, right? When you're trying to raise some money for your company. And let me contextualize this. So this is a really scary problem for your stack. And we think about it, it's called open source contamination. So basically, AI assistants, you know, they learn from millions of public code repositories. And sometimes they carry what are called like copyleft licenses,
The problem with copyleft is that it can require that if you build this kind of copyleft code into a product and distribute it, you release your source code as well under the same open terms that this license relates to. So this means that anyone can read, modify, and redistribute it. So this can be pretty damaging for you, right? Because it means this proprietary code that you want to keep secret, because this AI inadvertently hold this license in, it's now made it subject to a different kind of license structure and now you may have to reveal the whole code to your competitors.
Lindsey S. Mignano:
Well, that doesn't sound very good. in order to make sure that we don't have to do that, or at least if you were a founder and you were trying to prevent that, how can we what kind what kind of steps can we take to avoid having to reveal all of our code to our competitors?
Phil Omorogbe:
And really, there's three main things that you can do, right? Like the first is you want to run automated open source license scanning in your build pipeline and generate a software bill of material. So this kind of what we used is being tracked for you. Now the second thing is I want you to keep a written AI tool and open source policy and put AI and you know any sort of like provenance reps into your contractor agreements, right? Investors are increasingly asking for exactly this in their diligence. And the third is if if you want us to look at how your team's AI tooling affects your IP, we do offer a complementary consultation. So we'll we'll just let you know is your code clean right from the beginning so that you don't have any surprises when it's time to raise.
Your Startup's IP Is Only Valuable If the Company Actually Owns It
For an early-stage company, the technology may be the company's most valuable asset. But building the technology and legally owning it are not the same thing.
Before a financing, acquisition, or major commercial agreement, investors and buyers will want to know that the company—not a founder, employee, contractor, former employer, or third party—actually owns the intellectual property it is commercializing.
That means establishing a clean chain of title from the people who created the IP to the company that owns it.
Start With Founder and Employee IP Assignments
Every founder and employee who creates company-related intellectual property should have an appropriately drafted confidentiality and invention-assignment agreement or other agreement that clearly addresses ownership.
The agreement should cover the categories of work product that matter to the business, including software, source code, inventions, designs, documentation, databases, models, and other copyrightable or patentable material, while appropriately addressing inventions or works that are excluded from assignment under applicable law.
Do not assume that paying someone a salary automatically transfers all intellectual property rights to the company. The exact rules vary by type of IP and jurisdiction, and employment status matters.
Contractors Are a Common Chain-of-Title Problem
Contractor arrangements deserve particular attention. A company should not assume that a contractor owns or assigns intellectual property in the same way an employee does.
For copyrightable work, work-made-for-hire rules apply only in defined circumstances, and a written assignment is often the cleaner way to document ownership. Contractor agreements should therefore expressly address IP ownership, assignment of rights, confidentiality, and delivery of work product.
This becomes especially important when a startup has used offshore developers, development agencies, freelancers, designers, or other third-party service providers.
Check for Prior-Employer and Pre-Existing IP
Founders and early employees frequently arrive with technology, know-how, code, or other materials developed before joining the company. The company should identify those materials rather than simply assuming they belong to the startup.
Review prior invention-assignment agreements, employment agreements, consulting agreements, university policies, and other obligations that could affect a founder's or employee's ability to use or assign particular IP.
The goal is not merely to obtain a signature. It is to understand whether any third party could later claim an ownership interest or contractual right in technology that the startup considers its own.
Open-Source and Third-Party Software
Open-source software can be commercially valuable, but its license terms need to be understood.
Not all open-source licenses create the same obligations. Permissive licenses generally impose fewer downstream restrictions than copyleft licenses, while some licenses can impose source-code disclosure or licensing obligations when software is distributed in particular ways.
The right diligence question is not simply, “Do we use open source?” It is: “What open-source and third-party components are in the product, under what licenses, and what obligations do those licenses create for this business model?”
AI coding tools add another layer. If a development tool introduces third-party code or other material, the company should understand the provider's representations, limitations, and license terms rather than assuming that AI-generated code is automatically free of third-party issues.
Why This Matters in Financing and M&A
IP ownership problems tend to become expensive when the company has something to lose.
A financing investor may require the company to confirm that it owns or has sufficient rights to its core technology. An acquirer may require IP schedules, invention-assignment agreements, contractor agreements, open-source disclosures, and remediation of historical gaps.
A missing assignment that is easy to fix when a contractor is cooperative can become much harder to fix after the person has left, the company has raised money, or an acquisition is underway.
A Practical Startup IP Audit
Before a financing or acquisition, build a simple IP ownership checklist:
Identify every founder, employee, contractor, and third-party developer who contributed material IP.
Confirm that each person signed an appropriate confidentiality and IP assignment agreement.
Identify pre-existing IP and exclusions.
Review contractor and development-agency agreements.
Inventory material open-source and third-party components.
Check for prior-employer, university, or other third-party claims.
Identify missing or defective assignments and obtain corrective documentation where appropriate.
Confirm that the company's agreements match the actual entity that owns and commercializes the IP.
Bottom Line
The best time to fix an IP chain-of-title problem is before an investor or buyer finds it.
For founders, the objective is straightforward: know what IP the company depends on, know who created it, know who owns it, and have the contracts to prove it.
A clean IP ownership record is not just legal housekeeping. It can make the difference between a routine diligence process and a last-minute scramble to preserve the value of the business.