Alex is Sprintlaw's co-founder and a legal technology leader. He holds law and media degrees from the University of Sydney and has been recognized by Australasian Lawyer, Lawyers Weekly and the Sydney Young Entrepreneur Awards for his work building Sprintlaw and improving access to business legal support.
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Your business may rely on intellectual property (IP) every day without thinking too much about who technically owns it.
That could include your branding, website content, software, designs or other assets your business has built or paid someone else to create.
But if you are preparing to raise capital or sell the business, those ownership questions can become much more important.
An investor or buyer may want to see that your business actually owns its key IP, or has the rights it needs to keep using it. They may also look at your IP chain of title - essentially, the paper trail showing where important IP came from and how ownership ended up with your business.
A business may have operated for years without any obvious IP problems, only to discover during due diligence that a founder, freelancer, agency or contractor never properly transferred their rights to the company.
Reviewing your IP ownership and chain of title before due diligence starts can help you spot those gaps early and work out what may need attention.
What Does “IP Chain Of Title” Mean?
An IP chain of title is the ownership history behind a particular piece of intellectual property.
Put simply, it helps answer three questions: who originally created or owned the IP, how did it move from one owner to another, and what shows that your business owns it today?
Imagine your business hires a freelance designer to create its logo.
Paying the designer does not necessarily mean your company automatically owns the copyright in the finished design. Under US copyright law, copyright generally starts with the author, subject to exceptions such as qualifying works made for hire. A transfer of copyright ownership generally needs to be in writing and signed by the person transferring the rights.
So, in a straightforward example, the ownership trail might look like this:
Freelance designer creates the logo → designer assigns the relevant IP rights to the company → company owns those rights.
The same issue can come up with software developed by a contractor, branding created by an agency or IP a founder developed before the business was incorporated.
The important thing is being able to follow that trail and find the documents that support it.
Why Does IP Ownership Come Up During Due Diligence?
When someone is considering investing in or buying your business, they will usually want to understand what gives the business its value and what rights the company actually has in those assets.
For a software business, that might mean source code and product technology. For an ecommerce company, it could mean trademarks, designs, photography and website content.
The question is not whether your company owns absolutely everything it uses. Most businesses rely on third-party tools, software and licensed material.
The more useful question is whether the ownership and licensing arrangements match what the business says it has.
That can also matter if the company is asked to make contractual representations about the IP it owns or has the right to use as part of the transaction.
How Do You Check Your IP Chain Of Title?
You do not necessarily need to start by opening every contract the business has ever signed.
Instead, start with the assets the business actually depends on.
For a SaaS business, that might include its source code, brand and product. For another company, it could be its trademark, website content, designs or training materials.
Once you know what matters, work backwards.
Who created it? When? Under what agreement? Did ownership move to the company, or does the company simply have permission to use it?
Was The IP Created By A Founder?
Founder-created IP is worth checking where some of the business existed before the company itself.
A founder might have built the first version of an app, created a brand or developed key content before incorporation.
Forming a corporation or LLC does not, by itself, transfer pre-existing IP from the founder to the new entity.
This is where you would look for a founder IP assignment or another document showing how the relevant rights moved into the company. If that step was missed, an IP Assignment Deed may be one option to consider, depending on the circumstances.
You can also read more about founder IP assignments before fundraising if that is where the issue has come up.
Was It Created By An Employee?
The position can be different for employees.
Under US copyright law, qualifying work created by an employee within the scope of employment can generally be treated as a work made for hire.
However, the rules can vary depending on the type of IP and how the work was created, so employment agreements and their IP provisions are still worth checking.
The practical question is simple: if someone asks why the company owns the asset, can you point to the employment relationship and documents that support that position?
Did A Contractor Or Freelancer Create It?
This is one of the easiest places for assumptions to creep in.
Paying a contractor to create software, branding or content does not necessarily mean your business automatically owns the copyright in that work.
The US work-made-for-hire rules for independent contractors are relatively limited, which is why written IP assignments can be important.
Go back to the agreement and see what it actually says. Does it transfer ownership? Does the contractor keep any pre-existing tools, templates or code? Does your business receive a license instead?
Sprintlaw's guide to contractor-created IP looks at this in more detail.
If the work has already been completed and the assignment is missing, it may still be possible to document the transfer later if the current owner is willing and able to assign the rights.
Did An Agency Or External Developer Create It?
Agency arrangements can involve several layers of IP.
For example, an agency might create a website for your business while using its own pre-existing templates, frameworks or code libraries.
Your company might own the finished deliverables while the agency keeps ownership of its underlying tools or background IP.
That is not necessarily a problem.
What matters is whether the agreement makes the distinction clear and whether the rights your company received are enough for the way the business uses the work.
Did The Business Acquire The IP From Someone Else?
The chain can become longer if your business previously acquired another business, product or group of assets.
In that situation, check what the acquisition documents actually transferred and whether any separate assignments or recordation steps were required.
For patents and trademarks, USPTO records can also help show changes in ownership, although the underlying transaction documents still matter.
If a trademark is important to the business but has not yet been federally registered, Sprintlaw can also assist with Federal Trademark Registration.
Is The IP Actually Licensed Rather Than Owned?
Not every asset needs to be owned by the company.
Your business might rely on open-source software, stock photography, fonts, APIs, licensed technology or other third-party material.
In those cases, the question becomes: what rights does the business actually have?
Does the license cover how the business currently uses the material? Can it be assigned? Would consent be needed in connection with a transaction? Is there a change-of-control clause that may become relevant?
If a third-party agreement is important to the business and the answer is not clear, it may be worth having the contract reviewed before due diligence begins.
What If The Ownership Trail Does Not Add Up?
Not every chain-of-title issue is the same.
Sometimes the paperwork is simply missing. Perhaps everyone agrees that a contractor was supposed to transfer their IP to the company, but an assignment was never signed.
Depending on the circumstances, it may be possible to document the transfer later through an appropriate IP Assignment Deed.
Other times, the agreement exists but the rights are unclear. An agency contract may give your business permission to use the work without clearly transferring ownership, or a development agreement may exclude certain background technology.
In that case, the first step is understanding what the existing contract actually gives the company.
A genuine ownership dispute is different again. A former founder might say the IP was never transferred, or a contractor might argue that the business has exceeded the license originally granted.
If someone else is claiming ownership of IP that is important to the business, legal advice can help clarify the position before you make statements about ownership to an investor or buyer.
The same applies if an important old agreement cannot be found. Other records may help piece together what happened, but it is generally better to investigate the position than assume the rights are where everyone expects them to be.
Getting Your IP Ready For Due Diligence
Once you have traced the important IP, you should have a clearer picture of what the company owns, what it licenses and where the paperwork may need attention.
From there, bring the key supporting documents together.
That might include founder assignments, employment and contractor agreements, development contracts, important licenses, acquisition documents and records relating to registered IP.
You may also find it useful to prepare a simple schedule showing the key asset, where it came from and whether the company owns or licenses it.
The aim is to be able to answer one basic question if an investor or buyer asks:
Why does the company say it owns, or has the right to use, this asset?
If you can answer that clearly and point to the supporting paperwork, your chain of title is much easier to explain.
If something does not line up, finding it before due diligence starts gives you more time to understand the issue and work out what may need to be fixed.
If you are preparing for an investment or sale and are not sure whether your IP paperwork tells the full story, Sprintlaw can help review your existing agreements, identify ownership gaps and prepare IP assignments or other documents where needed. You can reach us at (888) 449-8437 or team@sprintlaw.com for a free, no-obligations chat.
Alex SoloCo-Founder
