In the early, caffeinated days of a Pennsylvania startup, the focus is almost always on the build. You are hiring the best freelance developers from Pittsburgh, designers from Philadelphia, and perhaps your first full-time engineer. You pay them fairly, they deliver the code, and you move on to the next sprint.

In your mind, you have bought the product. In the eyes of the law, however, you might just be renting it.

We call this the “$1 Million Mistake.” It usually surfaces at the worst possible time, during a Series A funding round or a high-stakes acquisition. An investor’s legal team begins its due diligence, looks for the chain of title for your software, and finds a gap. Because a contractor from three years ago never signed a formal Intellectual Property Assignment, that contractor, not your company, legally owns the core of your product.

As we move through 2026, when remote work and freelance gigs are the norm, securing your IP is no longer a task for later. It is a Day 1 requirement.

1. Why Paying for Work Does Not Mean You Own the IP

The most dangerous misconception in business law is the belief that if you paid for it, you own it. Under the U.S. Copyright Act, the default rule is that the individual creator owns the work the moment it is fixed in a tangible medium. While there are exceptions for employees, which are discussed below, there is no automatic transfer of ownership for independent contractors simply because a check was cashed.

Without a written agreement that explicitly assigns the rights to your company, the contractor retains the copyright. You may have an implied license to use the work, but you do not own it. You cannot stop others from using similar versions, and you cannot truthfully tell an acquirer that the IP is entirely yours. In addition, you may not have the right to create derivative works or modify the IP beyond what was originally delivered.

Ownership rules depend heavily on the legal status of the person doing the work. In Pennsylvania, courts look to the right of control to determine whether someone is a true employee or a contractor, regardless of their tax classification.

When Work Qualifies as Work Made for Hire

If a bona fide employee creates something within the scope of their employment, the employer is legally considered the author from the start. This is known as the Work Made for Hire doctrine.

The risk: What if your lead engineer builds a side feature on a personal laptop over the weekend? Is that within the scope of employment? Without a signed agreement, this becomes a legal gray area that could cost you your competitive advantage.

Why Contractors Retain IP Without a Written Assignment

For contractors, the law is far stricter. A work only qualifies as a Work Made for Hire if it fits into one of nine very specific categories, such as an atlas, a test, or a translation, and there is a written agreement. Software code is not on that list.

The rule of thumb: For contractors, you cannot rely on a Work Made for Hire label. You must have an express assignment of rights.

3. Patent Ownership Rules Every Founder Must Understand

It is vital to understand that patents and copyrights follow different legal rules.

Copyright applies to code, design, and written content, and it can qualify as Work Made for Hire under the right circumstances.

Patent Ownership

Patents cover inventions and algorithms. In the United States, a patent initially belongs to the individual human inventor, even if that person is a full-time employee.

A startup cannot be an inventor. Even your most loyal employees must sign a written document assigning their patent rights to the company. Without this, your company has no legal right to file a patent application, even if you paid for every second of research and development.

4. The Exit Trap: Why Investors Walk Away

Imagine sitting at the closing table for a five-million-dollar acquisition. The buyer’s counsel asks for the IP chain of title. They notice that your original logo and the first version of your API were created by a freelancer you found on a gig platform in 2024. You never obtained a signed assignment.

The buyer now has three options:

  1. Lower the valuation. The buyer reduces the purchase price to account for the risk of future litigation.
  2. Demand a signature. You are required to track down the contractor and obtain an assignment. If that contractor knows a deal is imminent, the price of that signature increases dramatically.
  3. Walk away entirely. Many institutional investors simply kill the deal. They are not in the business of buying lawsuits.

5. The Pennsylvania Compliance Layer: Act 122

In 2026, Pennsylvania business owners face an additional compliance requirement. Under Act 122, every Pennsylvania entity must file an Annual Report to remain in good standing.

If you fail to file, your business can be administratively dissolved. While reinstatement is possible, dissolution creates a gap in your corporate existence. If you attempt to enforce an IP assignment or pursue a trade secret claim while dissolved, your legal standing may be compromised. Maintaining your entity’s health with the Department of State is a foundational step toward making your IP enforceable.

6. Using a PIIA to Protect Company Intellectual Property

To protect your most valuable assets, every person who touches your product, including founders, employees, and contractors, should sign a Proprietary Information and Inventions Assignment, commonly referred to as a PIIA.

What a Strong PIIA Accomplishes

A well-drafted PIIA does three critical things:

  1. Assigns the IP. It explicitly transfers ownership of all work product to the company.
  2. Protects confidentiality. It requires the individual to safeguard trade secrets and proprietary information.
  3. Addresses prior work. It requires disclosure of any preexisting IP so there is no confusion about ownership later.

The Consideration Requirement in Pennsylvania

Under Pennsylvania law, a contract must include consideration to be enforceable. For new hires, the job offer itself is sufficient. For existing employees who never signed an agreement, you may need to offer a bonus, raise, or promotion to ensure the assignment is legally binding.

Summary: The Three-Step IP Safety Check

Step 1: The Audit

List every person who has contributed code, design, or strategy. Identify any missing links in your ownership chain.

Step 2: The Documentation

Confirm that every contributor has signed a PIIA or IP Assignment. Move from implied permission to clear legal ownership.

Step 3: The Filing

Verify your Pennsylvania Act 122 status at the Department of State. Make sure your company is legally active and able to hold and enforce IP rights.

Conclusion: Ownership Is Not Optional

In the tech world, your code is your company. If you do not own the code, you do not own the company. Securing IP assignments is not about mistrust. It is about professional discipline and long-term value protection. When a seven-figure opportunity arises, your paperwork must support your valuation.

Spengler & Agans works with Pennsylvania founders to clean up IP ownership, repair broken chains of title, and implement onboarding systems that protect growth and exits alike. A missing signature from 2024 should not derail your 2027 success.

Speak to Spengler & Agans Now

If you are unsure whether your company truly owns its intellectual property, now is the time to find out. Nathan Wenk of Spengler & Agans regularly advises startups on IP assignments, contractor agreements, and ownership cleanup before funding or acquisition events.
Schedule a consultation online to get guidance tailored to your business and protect the value you are building.