Meaning
Contractual uncertainties involving the ownership of technical work performed by external parties. These contractor ip assignment risks arise when the language in a service agreement fails to transfer rights automatically to the hiring entity upon the creation of the work. Many jurisdictions do not recognize a work for hire doctrine for non-employees.
Without a clear assignment, the copyright or patent rights remain with the individual developer rather than the company that paid for the development.
Ownership Gap
Problems emerge when a contractor finishes a project and later disputes the scope of the intellectual property transfer. The presence of contractor ip assignment risks can lead to a situation where a firm builds its core product on foundations it does not legally own. This gap allows a former provider to demand additional payments or licensing fees long after the original engagement ended.
Diligence Friction
Investors scrutinizing a company during a funding round look for clean chains of title for all software and designs. High contractor ip assignment risks frequently delay the closing of a deal or result in a lower valuation to account for the cost of obtaining confirmatory signatures. A standard clause in a series a term sheet requires the target company to fix all missing assignments as a condition of the investment.
Remediation Protocol
Resolving these issues involves drafting a separate confirmatory assignment that specifically identifies the work products and states they are transferred for nominal consideration. This document seals the chain of title.
